Terraform Labs PTE Ltd. and its CEO, Do Kwon, have been found guilty of defrauding investors in crypto asset securities. The United States District Court for the Southern District of New York delivered the verdict after a nine-day trial. Following an earlier ruling that Terraform Labs and Kwon violated the registration provisions of the Securities Act of 1933.

The SEC’s Stance on Compliance and Investor Protection

SEC Division of Enforcement Director Gurbir S Grewal expressed his satisfaction with the jury’s decision, stating:

“We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud. Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.”

The SEC Investigation and Court Rulings

The deception by Terraform Labs and Kwon resulted in devastating losses for investors and wiped out tens of billions of market value almost overnight. The SEC’s investigation into Kwon and Terraform’s involvement in the creation, promotion, and offer to sell various digital assets related to the “Mirror Protocol” continues.

SEC’s Investigative Subpoenas

In June 2022, the United States Court of Appeals for the Second Circuit affirmed a district court order requiring compliance with investigative subpoenas served by the SEC on Terraform Labs Pte Ltd and Do Kwon. The subpoenas were served as part of an SEC investigation into whether Kwon and Terraform violated federal securities laws in their participation in the creation, promotion, and offer to sell various digital assets related to the “Mirror Protocol.”

The appellate court rejected Terraform and Kwon’s arguments that the SEC violated its Rules of Practice when it served the subpoenas and that the district court lacked personal jurisdiction. The court reasoned that Terraform’s and Kwon’s reading of the Rules would allow a party to block service by not authorizing their counsel to receive any filings. The appellate court also noted that the district court’s jurisdiction over Terraform and Kwon arose from their purposeful and extensive U.S. contacts.

The Importance of Compliance and Registration

This verdict serves as a stark reminder of the consequences of non-compliance in the crypto markets.

As Grewal stated:

“For all of crypto’s promises, the lack of registration and compliance have very real consequences for real people. As the hard work of our team shows, we will continue to use the tools at our disposal to protect the investing public, but it is high time for the crypto markets to come into compliance.”


In conclusion, Terraform Labs and Do Kwon’s convictions for defrauding investors have shaken the cryptocurrency world. This case highlights the importance of compliance and registration in the crypto markets.