SEC hits Jump Trading with $123m fine over TerraUSD scandal and Luna misconduct

The SEC fined Tai Mo Shan Limited, a wholly owned subsidiary of Jump Crypto Holdings, $123 million for misleading investors about the stability of Terra USD, an alleged “algorithmic stablecoin” issued by Terraform Labs PTE Ltd. (Terraform).

Tai Mo Shan is further charged with trading securities in unregistered transactions. The SEC established that the firm acted as a statutory underwriter on some of its offers and sales of LUNA, which was also issued by Terraform and sold as a security.

SEC chair Gary Gensler said:

“This case reminds us that, too many times in the crypto markets, we’ve seen significant investor losses due to fraud.”

~ Gary Gensler

He stated that Tai Mo Shan’s illegal activities affected the entire crypto market, leading to serious investor losses. Gary stressed the need for market players to comply with security laws and avoid deceiving the public about investors’ security.

Tai Mo Shan agreed to settle the fine

TerraUSD worked at a constant $1 value through a web of mixed algorithms and trader motivations involving LUNA. However, when the network was strained and seemed to be breaking, Tai Mo Shan made huge purchases that helped to stabilize the coin. According to the SEC, the impression from Tai Mo’s purchase was that the algorithmic mechanism was working, yet it was a deceitful tactic.

Tai Mo made the purchases around May 2021, when the value of TerraUSD dropped below the $1 peg. The firm was motivated to purchase more than $20 million from Terraform. 

Tai Mo Shan agreed to pay $73,452,756 in disgorgement, $12,916,153 in prejudgment interest, and a $36,726,378 civil penalty as part of the settlement. Without admitting or denying the SEC’s findings, Tai Mo Shan agreed to cease and desist from violating the registration and fraud provisions it violated.

SEC reveals Jump Crypto’s involvement in TerraUSD collapse

According to SEC’s court filings, Jump Crypto had an arrangement with Terraform to bolster TerraUSD and earned up to $1 billion in profit. Later, Terraform agreed to pay around $4.5 billion to settle a SEC lawsuit on its collapse. Terra’s collapse shook the crypto world, wiping out $40 billion in investor assets and stock.

Luna Foundation established a ring of people as its guard, and among those people was Jump Crypto’s intern-turned-president Kanav Kariya. Luna Foundation Guard was responsible for overseeing TerraUSD’s reserve. The SEC’s case against Jump Trading was initiated during the crypto winter and finally settled.

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