Singapore-based Terraform Labs PTE Ltd and its CEO Do Hyeong Kwon have been charged by the Securities and Exchange Commission with conducting a crypto asset securities fraud worth billions of dollars, which involved an algorithmic stablecoin and other crypto asset securities.

"We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD," SEC Chair Gary Gensler said in the statement. "We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors."

According to the complaint, from April 2018 until May 2022, Terraform and Kwon allegedly raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.

"Terraform and Kwon also misled investors about one of the most important aspects of Terraform's offering – the stability of UST, the algorithmic 'stablecoin' purportedly pegged to the U.S. dollar," the filing said. "UST's price falling below its $1.00 'peg' and not quickly being restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no reserve of assets or any other backing."

The SEC’s complaint alleges that they marketed these crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value. However, in May 2022, UST depegged from the U.S. dollar, and the price of it and its sister tokens plummeted to close to zero. The defendants are charged with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.

"Almost immediately upon UST’s recovery in May 2021, Terraform and Kwon began to make materially misleading statements about how UST’s peg to the dollar was restored. Specifically, Terraform and Kwon emphasized the purported effectiveness of the algorithm underlying UST in maintaining UST pegged to the dollar – misleadingly omitting the true cause of UST’s re-peg: the deliberate intervention by the U.S. Trading Firm to restore the peg," the complaint said.

The collapse of TerraUSD last year led to wave of bankruptcies in the crypto industry.

According to Bloomberg, Terraform Labs said it has not been contacted by the SEC about the action, while SEC declined to comment.