- SEC penalizes Tai Mo Shan for falsely fixing TerraUSD’s $1 peg.
- The settlement includes a $123M punishment, emphasizing tougher crypto market oversight.
The U.S. Securities and Exchange Commission imposed a $123 million fine on Tai Mo Shan Ltd., a subsidiary of Jump Crypto, for misleading investors about the stability of TerraUSD. This algorithmic stablecoin, issued by Terraform Labs, collapsed in May 2022. It brought about a catastrophic loss of $40 billion in investor assets.
According to the SEC, it was Tai Mo Shan who during the destabilization of TerraUSD purchased $20 million, to artificially maintain TerraUSD at a $1 peg. This created an illusion that the algorithmic mechanism of the stablecoin had started working properly, in turn deceiving investors and markets at the critical hour.
More precisely, it is also accused of financing the sister token of TerraUSD, called Luna which is determined by the SEC to be an unregistered security. The company realized revenues from these transactions and enormously contributed to Terraform Lab’s ecosystem between early 2021 and May 2022.
Shedding Light on Regulatory Focus
SEC Chair Gary Gensler said manipulative trading by Tai Mo Shan, which ate away investor confidence, contributed to one of the most infamous collapses in the crypto industry. The company neither admitted nor denied the charges. However, it agreed to pay disgorgement of $73.5 million, prejudgment interest of $12.9 million, and civil penalties of $36.7 million.
It emerged from the SEC‘s probe that Tai Mo Shan caused investor losses while the company was said to have reaped over $1 billion in profits. The settlement agreed upon by the parties indicated that Tai Mo Shan would desist from further violations. The settlement also specified that Tai Mo Shan would comply with U.S. securities laws moving forward.
The implications extend beyond Jump Crypto. Its former chief, Kanav Kariya, resigned in June 2024 as criticism over the collapse of TerraUSD and Luna intensified. This serves as a grim reminder of the risks cryptocurrency market investors face and the need for compliance to protect their investments.
As indicated, the TerraUSD case portrays the necessity of maintaining trust and integrity to keep investor confidence in the crypto market as maturity sets in. It is going to be quite difficult to forget that the repercussions of the decision by the SEC will imply stricter regulations down the line for the crypto industry, changing the game on how companies operate with their investors.
The TerraUSD debacle and the fine upon Tai Mo Shan only serve to further highlight why regulatory structures are the kind that safeguard investors and allow transparency in the blockchain and cryptocurrency world.
