LUNA Lands in Court

SEC Sues Terraform Labs and Do Kwon for Crypto Fraud Involving UST and LUNA

According to the SEC, Terra was nothing but a multimillion-dollar fraud, and Do Kwon and Terraform Labs must pay.

On February 16th, the US Securities and Exchange Commission (SEC) accused Terraform Labs, the Singapore-based company behind the creation of LUNA and UST – native tokens of the Terra ecosystem – and its co-founder Do Kwon of promoting a multi-billion dollar fraud by offering and selling unregistered securities through the use of crypto assets.

SEC press release and complaint.
Does the SEC have any jurisdiction in this case?

In July 2022, South Korean authorities reportedly raided Kwon’s offices in Seoul and launched an investigation into TFL, the company behind the Terra stablecoin. The investigation was prompted by allegations that the firm had been manipulating the price of its LUNA token through wash trading and other illicit activities.

One interesting thing regarding the stablecoin is the allegation that it wasn't really "algorithmic" at all.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that the complaint demonstrates that the Terra ecosystem was not at all decentralized but a “fraud propped up by a so-called algorithmic ‘stablecoin’ (UST), whose price “was controlled by the defendants, not any code.”

But why has the SEC taken so long, and what do they hope to achieve?

Terra lawsuit a ‘roadmap’ to attack other stablecoins: Delphi Labs

Interesting thread that also highlights the change in jargon. Replacing the Howey test with the concept of a "receipt for a security" - which then itself becomes a security.

I think this is right:

The SEC has no powers to make laws, but is using coercion to push the US Congress to make laws that will protect the existing financial order at the expense of the "new money".

That stablecoins are securities is a con. Think about it in the real world. You can "stake" your fiat currency into a government bond and receive interest. The bonds are securities, but the money definitely isn't!

The other thing that crypto stablecoins have exposed is the whole process of creating money. This process is hidden and mysterious to most people. Some of the stake-and-earn constructs look more like seigneurage than bonds. "Seigniorage gives a country the potential to turn a profit when it produces money." The "country" being the government and central bank.

It remains unclear at what point in any stablecoin algorithm - even collateralised stablecoins have algos for minting and burning - an investor is buying into a bond-contract or is facilitating the minting-contract.