Tai Mo Shan Agrees to $123 Million Settlement with SEC Over TerraUSD Collapse

This settlement is part of the SEC’s broader effort to regulate the cryptocurrency market and hold market participants accountable for deceptive practices. The SEC accused Tai Mo Shan of misleading investors by artificially stabilizing the value of UST during its failed attempt to maintain a $1 peg.

The settlement includes three key components:

• Disgorgement: $73.5 million
• Prejudgment Interest: $12.9 million
• Civil Penalty: $36.7 million

While Tai Mo Shan has neither admitted nor denied the SEC’s findings, the firm has agreed to cease and desist from further violations of U.S. securities laws.

The SEC’s allegations against Tai Mo Shan stem from its actions between 2021 and 2022, where the company allegedly bought over $20 million worth of UST during critical periods when the stablecoin’s value fell below $1. This was done to create the false impression that UST’s algorithmic stabilizing mechanism was functioning correctly. The SEC also claims that Tai Mo Shan underwrote and sold Luna tokens, UST’s sister token, on U.S.-based crypto platforms during this period, further violating securities laws.

Tai Mo Shan settles with SEC for $123M over TerraUSD. Source: SEC

The collapse of TerraUSD in May 2022 was one of the most momentous events in cryptocurrency history, resulting in the loss of almost $40 billion in investor holdings. UST’s failure to maintain its dollar peg highlighted the risks associated with algorithmic stablecoins, which rely on a combination of algorithms and collateral rather than traditional physical asset backing. This event represented a watershed moment for the bitcoin industry, prompting more attention from regulators throughout the world.

The SEC’s investigation into TerraUSD and its ecosystem has been ongoing, with Terraform Labs and its founder, Do Kwon, also under legal fire. In the wake of the Terra collapse, the SEC charged Kwon with fraud and other violations, and in 2024, Kwon’s company agreed to pay a $4.5 billion penalty to resolve a separate case. This settlement aimed to recover some of the massive losses suffered by investors.

Source: X

According to Gary Gensler, SEC Chair, “Regardless of the labels, crypto market participants should comply with securities laws where applicable and not deceive the public.” The SEC’s actions against Tai Mo Shan mirror this concept, demonstrating that the agency is committed to ensuring that cryptocurrency companies follow the same regulatory standards as traditional financial organizations.

In addition to SEC measures, global regulators are constantly monitoring the digital currency market. The TerraUSD crash has spurred the United States to adopt more active measures to control stablecoins. The Lummis-Gillibrand Stablecoin Act, which was just introduced, aims to ban algorithmic stablecoins such as UST. The act has the potential to reshape the future of stablecoins in the U.S. by providing clear regulations to prevent further systemic risks to the market.