- SEC charges Tai Mo Shan for misleading investors about UST stability and selling unregistered LUNA tokens.
- Tai Mo Shan paid $123M in fines for deceptive practices and violating U.S. securities laws.
- SEC emphasizes compliance, citing investor risks from fraudulent crypto activities and market manipulation.
The U.S. Securities and Exchange Commission (SEC) has charged Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, with misleading investors. The SEC also accused the company of violating the law by offering and selling LUNA, a token by Terraform Labs, as unregistered securities.
Tai Mo Shan Misled Investors About UST Stability
The SEC claimed Tai Mo Shan misled investors about the stability of Terra USD (UST). Terraform Labs had promoted UST as an algorithm-backed stablecoin. When UST fell below $1 in May 2021, Tai Mo Shan intervened under an agreement with Terraform Labs.
Terraform incentivized Tai Mo Shan with discounted LUNA tokens to buy UST and restore its peg. On May 19, 2021, Tai Mo Shan purchased over $20 million worth of UST. This temporarily stabilized UST's price and created the illusion of algorithm-driven stability. However, the SEC stated Tai Mo Shan’s actions deceived investors by hiding reliance on external intervention. Investors believed Terraform's system maintained the UST peg, not external trades.
Tai Mo Shan Acted as an Underwriter for LUNA
The SEC claimed that Tai Mo Shan had served as a statutory underwriter in relation to Terraform Labs. Between January 2021 and May 2022, Tai Mo Shan purchased LUNA tokens with the purpose to sell them on the American markets. The SEC concluded that LUNA is a security and declared that Tai Mo Shan violated securities laws not to register such sales. The company was somehow involved in the process of distributing LUNA tokens to the general public investors. These unregistered sales contributed to the charges brought against Tai Mo Shan by the SEC.
As part of the settlement, Tai Mo Shan agreed to pay significant financial penalties. In terms of disgorgement, the company shall return $73.45, while in prejudgment interest, $12.91. The company will also be charged a civil penalty of $36.72. These penalties seek to recover the ill-gotten gains from the crime and to recover the losses made by investors that had been defrauded. Tai Mo Shan did not contest the findings of the SEC but did not acknowledge them either while accepting a cease-and-desist order.
SEC Emphasizes Regulatory Compliance
The chair of SEC, Gary Gensler noted the importance of regulations surrounding the digital currency markets. He also pointed out various threats which arise from fraudulent activities and the importance of preserving investors. Furthermore, Gensler stressed on the fact that all those involved in the markets ought to abide by the securities laws and regulations. Noncompliance may lead to large-scale losses for investors.
The SEC also mentioned Terraform Labs and its CEO Do Kwon, who was charged with similar violations in the past. This year Terraform and Kwon agreed to pay $4.5 billion over fraud allegations.
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