Civil fraud charges were brought against Terraform Labs and its co-founder, Do Kwon, for deceiving investors about the algorithm behind Terra USD (UST). The Manhattan jury found them liable after a nine-day trial, agreeing with the US Securities and Exchange Commission's (SEC) accusations. Kwon claimed UST could "automatically self-heal" after a de-peg, but the reality was that it relied on continuous trading, including significant involvement from institutional investors.

SEC's Response and Jump Trading's Involvement

SEC Enforcement Director Gurbir Grewal expressed satisfaction with the jury's verdict, holding Terraform Labs and Do Kwon accountable for extensive cryptocurrency fraud. The jury's decision highlighted the consequences of the lack of compliance and registration in the crypto market. SEC attorney Laura Meehan also revealed that Jump Trading had undisclosed agreements with Kwon and Terraform Labs. Jump Trading purchased millions of dollars worth of UST off-chain to maintain its value during a de-pegging event, which Kwon and his company aimed to use as evidence of their algorithm's effectiveness.

Despite Terraform Labs' assertion that Jump's involvement was a typical part of their relationship and not a standalone entity, the jury's verdict contradicted this view. Kwon, who was undergoing a civil trial in Manhattan, faced difficulties due to his arrest in Montenegro while attempting to use fake travel documents. Both the United States and South Korea have pending criminal charges against Kwon, leaving his final destination uncertain pending Montenegro's Supreme Court's decision.