Quick Take
- Tai Mo Shan, a subsidiary of Jump Trading’s crypto unit, will pay $123 million in fines after allegedly misleading investors during the TerraUSD depegging event in May 2021.
- The penalty includes over $86 million in disgorgement and approximately $36 million in civil penalties.
- Tai Mo Shan agreed to the settlement without admitting or denying the SEC’s findings.
In May 2021, the TerraUSD (UST) stablecoin faced a brief “depeg” from its $1 value. Although the token appeared to automatically stabilize, a behind-the-scenes intervention by Tai Mo Shan, a subsidiary of Jump Trading’s crypto division, was critical in restoring the peg. According to an SEC complaint, Tai Mo Shan spent $20 million to purchase UST and stabilize its value, allegedly misleading investors about the efficacy of Terraform Labs’ algorithmic stabilization mechanism.
The SEC Settlement
The SEC and Tai Mo Shan have reached an agreement under which the subsidiary will pay $123 million in fines. This figure includes $86 million in disgorgement—representing the amount Tai Mo Shan profited from the intervention, plus interest—and $36 million as a civil penalty. The settlement was finalized without Tai Mo Shan admitting to or denying the SEC’s allegations.
The SEC’s order claims that Tai Mo Shan’s actions “caused investors to be deceived about the efficacy of Terraform’s arbitrage mechanism.” As part of the intervention, Tai Mo Shan received early access to unlocked Luna tokens, which it later sold into the market for significant profits.
Misleading Investors
Terraform Labs founder Do Kwon publicly praised TerraUSD’s ability to survive what he called a “black swan event,” claiming the stablecoin’s algorithm had passed an extreme stress test. However, the SEC alleges that Kwon’s comments failed to disclose Tai Mo Shan’s role in stabilizing the peg, leading investors to believe the algorithm functioned as intended.
“Tai Mo Shan should have known that purchasing UST and supporting its price in this manner misled the market about the stability of UST’s peg and the effectiveness of Terraform’s algorithm meant to maintain that stability,” the SEC wrote in its order.
Broader Implications
Jump Crypto’s president, Kanav Kariya, had previously invoked the Fifth Amendment during a deposition about the deal. Despite the controversy, Tai Mo Shan’s settlement allows it to avoid further litigation while leaving unresolved questions about the broader market implications of similar interventions.
Terraform Labs also faced significant legal consequences following the collapse of its ecosystem. In a separate settlement, the firm agreed to pay over $4 billion in fines and received permission from a U.S. bankruptcy judge to begin winding down operations in September 2024.
BlockBeep.com will continue to monitor and report on regulatory actions and developments in the cryptocurrency ecosystem.
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