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SEC fines Tai Mo Shan $123,Million for misleading investors about TerraUSD stability.
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Tai Mo Shan violated the law by selling unregistered security via LUNA token tradings.
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TerraUSD collapse exposes gaps of crypto transparency and regulatory oversight requirements.
Tai Mo Shan Limited (a subsidiary of Jump Crypto Holdings LLC) was fined $123 million by the SEC for deceptive practices involving TerraUSD (UST). The Tai Mo Shan TerraUSD fraud involved misleading investors about TerraUSD’s stability, and selling unregistered security.
This $123 million settlement is a stark reminder of the fact that the cryptocurrency market can be a breeding grounds for costly scandals.
TerraUSD’s Downfall & Investor Deception
TerraUSD, a stablecoin pegged with the U.S. Dollar, was introduced to promise unwavering stability. Tai Mo Shan assured investors that Terraform Labs’ algorithm would ensure this peg. But in May 2021 UST lost the dollar peg and investor confidence was eroded.
Tai Mo Shan made trades worth $20 million to temporarily restore the peg. Although the effort was successful for a short time, the stability wasn’t algorithm-driven. External interventions, not disclosed to investors, were responsible for boosting the value. The SEC considered these actions to be misleading, a breach of trust.
Read about the TerraUSD collapse: The risks of algorithmic stablecoins
Unregistered Securities Sale
Tai Mo Shan made secret deals with Terraform Labs from January 2021 until May 2022. In exchange for stabilizing UST the company received discounted LUNA Tokens which were then resold in U.S. based exchanges.
The SEC classifies LUNA tokens and other similar tokens as securities that require registration before they can traded. Tai Mo Shan violated securities law by acting as a statutory agent and avoiding registration. These actions revealed significant transparency issues and fueled broader concerns about the accountability within crypto industry.
Penalties and regulatory action
Tai Mo Shan has agreed to pay $123 million worth of fines, interest and civil penalties. The company will also be subject to a stop-and-desist. Tai Mo Shan accepted the penalties but did not admit or deny the allegations. This allowed them to close the case, without accepting full responsibility.
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