Bloomberg: SEC is investigating Terraform Labs

According to Bloomberg, the U.S. Securities and Exchange Commission (SEC) is investigating whether the TerraUSD stablecoin marketing before last month’s crash violated federal investor protection regulations, and SEC enforcement attorneys are investigating whether the team behind Terraform Labs violated securities, according to people familiar with the matter. and rules for investment products.

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The agency is already investigating Terraform founder Do Kwon’s role in building the Mirror Protocol, which allows users to trade tokens representing synthetic stocks.

Terraform Labs said in a statement that it was not aware of the new investigation: “We are currently not aware of any SEC investigation of TerraUSD — we have not received such communications from the SEC, and Not aware of new investigations other than those involving the Mirror Protocol”.

Beginning on May 7, the implosion of UST sent shockwaves through the crypto market. Afterwards, U.S. Treasury Secretary Janet Yellen said the incident exposed the dangers of tokens purporting to be pegged to the U.S. dollar, which Acting U.S. Comptroller of the Currency Michael Hsu called a “wake-up call.”

Stablecoins play a key role in cryptocurrencies because their relatively stable value can provide a safe haven for many investors in highly volatile markets. Unlike other companies that claim to be backed by cash and similar assets to maintain its peg, UST uses algorithms and trader incentives to maintain its price.

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Under this mechanism, every time a UST token is created, $1 worth of Luna (the value of which is determined by the market) is destroyed, and vice versa. If the price falls below $1, traders will actively exchange UST for Luna, which will reduce the former’s circulation and push its price higher. A computer program will work together to do the same thing. The opposite happens if the value of UST rises above $1.

Under securities rules, virtual currencies may fall under the jurisdiction of the SEC if a U.S. person purchases virtual currency to finance a company or project with the intent of profiting from the participants’ efforts. The ruling was based on the 1946 U.S. Supreme Court’s definition of an investment contract. The agency also claimed that, in some cases, a crypto firm could face restrictions on investment firms if it holds assets.

In a February case, regulators said popular crypto platform BlockFi Inc. was operating as an unregistered investment firm “because it is an issuer of securities, invests in, reinvests, owns, holds or trades in securities and A business that owns investment securities.” The company agreed to pay a $100 million fine to the SEC and state regulators to resolve these and other allegations, but did not admit to alleged violations.

Terraform relaunched its blockchain and Luna token under a new name, which fell to near zero during the crash. The TerraUSD stablecoin is not included in the new release.

Meanwhile, Seoul police are investigating allegations that Terraform Labs staff misappropriated bitcoin assets to help defend UST’s peg to the U.S. dollar.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/bloomberg-sec-is-investigating-terraform-labs/
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