According to Bloomberg, a jury in New York has found that Kwon and Terraform misled investors after a two-week trial. Kwon, who owns 92% of Terraform, was arrested in Montenegro a year ago and convicted of attempting to travel using a fake passport. The authorities in Montenegro are currently considering their next steps.
The seven-person Manhattan jury deliberated for less than two hours before concluding that Kwon and Terraform falsely claimed that Chai, a popular Korean payment application, utilized Terraform’s blockchain technology for transactions. The jury also found that investors were misled about the stability of the UST stablecoin, which Kwon and Terraform claimed was algorithmically pegged to the US dollar.
The SEC only asked the jury for a finding of liability. It will request the judge to award civil penalties as well as the payment of ill-gotten gains and prejudgment interest. A spokesperson for Terraform Labs expressed disappointment with the verdict, stating that they do not believe it is supported by the evidence. They also maintained that the SEC does not have the legal authority to bring this case and are considering their options and next steps.
This trial is the latest in a series of high-profile courtroom battles between the US government and major players in the crypto industry. The legal challenges in Montenegro led to an unusual situation for SEC enforcers, who went to trial with their civil fraud claims before the criminal case against the same defendant was resolved.
The SEC lawyer, Devon Staren, told the jury at the start of the trial that 'Terra was a fraud, a house of cards,' and when it collapsed, investors lost nearly everything. Terraform filed for Chapter 11 bankruptcy protection in January, claiming it couldn’t pay the penalties sought by federal regulators. The jury heard testimony from Chai’s former head product executive, who supported the SEC’s argument that Terraform made misleading statements about the payment application’s use of its technology. They also heard from alleged whistleblowers and expert witnesses refuting Terraform claims about Chai. The SEC also presented evidence that Jump Crypto put money into UST to defend its dollar peg, undercutting Terraform claims that the peg didn’t require outside intervention.