According to a report from Reuters, a New York jury has concluded that Terraform Labs and its founder, Do Kwon, are responsible for civil fraud charges, aligning with the U.S. Securities and Exchange Commission (SEC) on Friday.
Do Kwon and The Verdict on Civil Fraud Charges
The SEC accused Terraform Labs and Kwon of deceiving investors by misrepresenting the stability of their stablecoin, TerraUSD, and promoting unsubstantiated assertions. Terra's collapse resulted in losses amounting to $40 billion and was highlighted as a significant catalyst in the broader downturn of the cryptocurrency market.
After a two-week trial, the verdict was handed down in federal court shortly following closing arguments, as reported by Reuters. The SEC aims to impose civil financial penalties and obtain orders prohibiting Kwon and Terraform from participating in the securities industry. The collapse of TerraUSD and its associated token, Luna, in May 2022 resulted in losses exceeding $40 billion and triggered widespread upheaval in the cryptocurrency market.
Key Legal Determination Regarding Luna and UST
Kwon, who was detained in Montenegro in March 2023, did not appear at the trial. Both the U.S. and South Korea have requested his extradition for criminal charges. Terraform Labs filed for bankruptcy protection in January.
The SEC contended that Kwon and Terraform orchestrated a secret arrangement for a third party to buy substantial quantities of TerraUSD in May 2021 to uphold its dollar peg. Kwon allegedly falsely credited the recovery to TerraUSD's algorithmic reliability. Additionally, the regulator alleged that Kwon and Terraform inaccurately promoted their blockchain's use in Chai, a well-known payment application in Korea.
Lawyers representing Terraform Labs and Kwon asserted that the company had consistently been transparent about its products and their capabilities, even amid instances of failure. They argued that the SEC's case was built on misinterpreted statements taken out of context.
The legal representation for the firm became contentious earlier when the SEC criticized a $166 million fund designated for the firm's lawyers as a "slush fund." In response, the lawyers characterized the SEC's actions as a "troubling example of government overreach," alleging that the SEC aimed to "disadvantage and distract" them from addressing the case's merits.
In December, a significant aspect of the case was clarified when a federal judge determined that Luna and UST (TerraUSD) were considered securities and thus subject to registration and other financial regulations.
Will the LUNC Price Crash to $0?
The civil fraud charges against Terraform Labs and Do Kwon, coupled with the determination that Luna and UST (TerraUSD) are securities subject to regulations, have injected uncertainty into the cryptocurrency's future.
The collapse of TerraUSD and the associated token Luna, which led to significant losses exceeding $40 billion and triggered widespread upheaval in the crypto market, underscores underlying risks. The regulatory scrutiny and legal challenges facing Terraform Labs and Kwon raise concerns about the stability and viability of Luna.
Additionally, the absence of Do Kwon at the trial following his detention and extradition requests for criminal charges further complicates the outlook for Terraform Labs and its associated assets. The legal and regulatory actions could potentially impact investor confidence and market sentiment surrounding Luna.
Based on recent performance indicators and market trends, traders should approach LUNC with caution due to several concerning factors. Firstly, LUNC has underperformed compared to 79% of the top 100 crypto assets over the past year, indicating relative weakness within the broader cryptocurrency market. It's important to note that LUNC has been outpaced by leading cryptocurrencies like Bitcoin and Ethereum, which have demonstrated stronger price momentum and market dominance.
Furthermore, LUNC is currently trading below its 200-day simple moving average, suggesting a bearish trend and potential downward pressure on its price. The recent lackluster performance is highlighted by only 13 green trading days out of the last 30 days, representing a modest 43% positive trading frequency. Additionally, LUNC price remains sharply down by -100% from its all-time high, indicating significant losses and a challenging recovery trajectory.
Given these observations, traders should exercise caution and consider implementing risk management strategies when trading LUNC. The ongoing legal and regulatory uncertainties surrounding Terraform Labs and the broader cryptocurrency market landscape warrant careful monitoring and due diligence.
