The US Securities and Exchange Commission is set to sue Terraform Labs in what could be a landmark suit since the Terra Luna crash that occurred in 2022. It should be noted that the regulator had been investigating the circumstance behind the token depegging, which is the first move towards litigation.
TerraForms Labs set to face SEC hammer
According to a report from Bloomberg, the SEC will be placing a suit alleging that TerraForms Labs misled investors about the stablecoin’s ability to maintain a 1-to-1 peg to the US dollar. In addition, the suit will also allege that TerraUSD should have been registered with the agency, and this falls under financial breaches with the SEC.
According to the report, the SEC is currently in the final stages of preparing the suit and the timing and plans could change in the coming days. TerraUSD or UST was an algorithmic stablecoin that was designed to maintain its peg through its sister token called Luna.
However, the delicate balancing of the pegging mechanism faced a major obstacle in May last year, which led to a massive selloff sparking a domino effect. Holders saw their UST stablecoin depegged leading to panic in the crypto space.
The effect of TerraLuna also extended to several crypto institutions like Three Arrows Capital and VoyagerDigital which filed for bankruptcy in the aftermath of the crash.
SEC increasing scrutiny on digital assets
The aftermath of the TerraLuna crash led to calls for a significant crackdown on digital assets, and the SEC has brought high-profile lawsuits against crypto platforms like FTX and Ripple in recent years.
It should be noted that before Terra’s crash in 2022, founder Do Kwon had received an SEC subpoena while attending a crypto conference in New York in 2021. Do Kwon is currently on the run from South Korean authorities, who have placed a warrant for his arrest since last September on allegations of financial breaches, which he has denied.
This latest move by the SEC is expected to generate a lot of buzz in the crypto industry and could pave the way for new regulations in the US crypto industry.
Related reading: Korean E-commerce CEO Allegedly Accepts LUNA to Endorse Terra Labs
