U.S. SEC Reportedly Expands Probe Into Terraform Labs UST Marketing

The U.S. Securities and Exchange Commission has expanded its investigation into Terraform Labs beyond the Mirror Protocol and into the company’s marketing practices concerning its now collapsed UST stablecoin.

According to a report by Bloomberg, the U.S. Securities and Exchange Commission has expanded its investigation into Terraform Labs also include whether the company violated federal investor-protection regulations with its UST marketing. The new development comes a day after the U.S. Court of Appeals ordered Terraform Labs and its CEO Do Kwon to comply with the SEC’s investigative subpoenas requesting them to provide testimony and documents concerning the operation of the Mirror Protocol on Terra. 

The SEC started its probe on Kwon and Terraform Labs for allegedly selling unregistered securities in the U.S. through the Mirror Protocol back in May 2021, long before Terra’s $40 billion ecosystem collapse that resulted from UST’s faulty architecture design. Mirror Protocol is a blockchain application for creating and trading synthetic assets that track the price of real-world securities, including stocks of companies listed on U.S. stock exchanges. 

The SEC was initially only investigating whether Kwon and Terraform Labs broke securities laws by selling these unregistered securities to U.S. customers.

According to anonymous sources cited in the Bloomberg report, the financial regulator has expanded its probe to examine whether Terraform Labs may have also broken investor-protection provisions by falsely marketing UST as a stablecoin reliably pegged one-to-one with the U.S. dollar.

The SEC has also reportedly discovered that Kwon had been funneling roughly $80 million in company funds per month to his own personal cryptocurrency wallets, raising money laundering suspicions with the agency. Per the local newspaper, internal statements allegedly secured by the SEC revealed that “the funds flowed into dozens of cryptocurrency wallets,” with one of the key internal informants claiming that Kwon did not officially receive a salary from the company.