As a seasoned researcher with a keen interest in the ever-evolving world of finance and cryptocurrencies, I find myself constantly amazed by the complexities and nuances that characterize this industry. The recent actions taken by the SEC against Tai Mo Shan Limited serve as yet another reminder of the need for transparency, accountability, and compliance in the crypto markets.
The regulatory body in the United States, known as the Securities and Exchange Commission (SEC), has accused Tai Mo Shan Limited, a subordinate company of Jump Crypto Holdings LLC, for deceiving investors regarding the reliability of Terra USD (UST), a stablecoin developed by Terraform Labs. The SEC claims that they provided false information about UST’s stability to investors.
Additionally, the SEC charged Tai Mo Shan for illegally distributing and trading LUNA, a digital currency produced by Terraform, without proper registration as securities.
Misleading Investors About Terra USD Peg Stability
The Security and Exchange Commission (SEC) claims that Tai Mo Shan misled investors by giving the impression that Terraform Labs’ algorithmic system was consistently maintaining the $1 value of UST. However, when UST dropped below the $1 mark in May 2021, Tai Mo Shan entered into a deal with Terraform Labs to help stabilize the price. In this agreement, Terraform rewarded Tai Mo Shan with cheaper LUNA tokens for buying UST and attempting to reestablish its $1 peg.
On May 19, 2021, I found myself investing a significant amount, around $20 million, in UST. This move seemed to have a temporary positive impact on the stability of the stablecoin’s price.
According to the SEC, it was found that Terraform’s actions gave a false impression to the market that their algorithm was keeping the value consistent with a fixed rate (the peg), when in reality, it was Tai Mo Shan’s trades that were maintaining the stability. The SEC considered this behavior negligent because investors were not informed about the need for external intervention to keep UST stable.
Role as a Statutory Underwriter for LUNA
According to the SEC’s investigations, it was found that Tai Mo Shan functioned as a legal broker for Terraform Labs, purchasing LUNA tokens with the aim of re-selling them on U.S. trading platforms.
Between January 2021 and May 2022, Tai Mo Shan illegally distributed and traded these tokens, which were considered securities, without the necessary registration – a breach of U.S. securities regulations.
According to the SEC, they categorized LUNA as an investment product, pointing out that Tai Mo Shan obtained the digital currency from Terraform with the intention of distributing it publicly. This action strengthened the SEC’s allegations of conducting unregistered sales of securities.
In the terms of the settlement, Tai Mo Shan was required to make payments totaling approximately $123.08 million. This sum includes a payment for disgorgement (illegal profits), an amount for prejudgment interest, and a civil penalty. These payments are intended to rectify the ill-gotten gains from deceitful actions and unregistered transactions.
In response to the SEC’s investigation findings, Tai Mo Shan didn’t confirm or challenge them. Yet, the company chose to adhere to a halt order, which forbids any future infractions of federal securities regulations.
US SEC’s Statement on Investor Protection
As an analyst, I’m highlighting the importance of adherence to regulations within the cryptocurrency markets. Far too often, we witness investor losses stemming from fraudulent activities in this domain. Regardless of the terminology used, all participants in the crypto market should abide by securities laws and refrain from misleading the public. Failure to do so will inevitably result in harm to investors.
In early 2024, it was determined that Terraform Labs and its leader, Do Kwon, were responsible for fraudulent activities and unregistered securities sales. Subsequently, they agreed to pay a total of $4.5 billion as compensation to affected investors, showcasing the far-reaching consequences of the failure of the Terra ecosystem.
This situation signifies another advancement in the Securities and Exchange Commission’s continuous endeavors to govern the cryptocurrency market, ensuring that investors are shielded from misleading activities.
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2024-12-21 05:46