SEC Launches Investigation Into Terra and USTC Conduct Before May Crash

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The US Securities and Exchange Commission (SEC) has launched an investigation into the conduct of Terraform Labs and its algorithmic Stablecoin Terra Classic UST (USTC), according to a Bloomberg report on Thursday.

UST lost its dollar peg in early May, which triggered a market-wide meltdown leading to the collapse of Luna Classic (LUNC). Both USTC and LUNC were native to the old Terra blockchain.

The Bloomberg report detailed that the regulatory watchdog is trying to discover if the marketing of USTC before its unfortunate crash breached federal investor protection laws. More specifically, the SEC launched its investigation to ascertain whether Terraform Labs broke securities and investment product rules.

Meanwhile, the collapse of the two cryptocurrencies, which caused tens of billions of dollars in losses, raised several eyebrows globally as various countries looked into regulating Stablecoins. US Treasury Secretary Janet Yellen asserted that Stablecoin regulation is urgent, while SEC Chairman Gary Gensler noted that several crypto tokens would fail if action is not taken swiftly.

Terra Ordered to Comply with SEC Subpoenas

Terraform Labs CEO Do Kwon previously came under scrutiny over the Mirror Protocol exploit. On Wednesday, a ruling ordered Terraform Labs and Kwon to comply with the SEC subpoenas filed in February.

Commenting on the investigation by the regulator, Terra’s CEO told news outlets that the company was unaware of any SEC investigation. He explained: “We are not aware of any SEC probes into Terrausd at this time – we’ve received no such communication from the SEC and are aware of no new investigation outside of that involving Mirror Protocol.”

Meanwhile, legal experts believe that Kwon will not face any criminal charges in the US. However, they noted that he was more likely to face civil charges and regulatory penalties.