Tai Mo Shan’s TerraUSD Deception Turns Costly: SEC Imposes $123M Penalty

Deceptive practices surrounding TerraUSD (UST) have landed Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, in hot water with the SEC, resulting in a $123 million settlement. The Tai Mo Shan TerraUSD deception involved misleading investors about the stablecoin’s stability and selling unregistered securities.

This $123 million settlement serves as a stark reminder that the cryptocurrency market, often touted as a hub of financial innovation, can also be a breeding ground for costly scandals.

TerraUSD’s Downfall and Investor Deception

TerraUSD was introduced as a stablecoin pegged to the U.S. dollar, promising unwavering stability. Tai Mo Shan reassured investors that Terraform Labs’ algorithm ensured this peg. But, in May 2021, UST lost its dollar peg, eroding investor confidence.

Tai Mo Shan intervened with $20 million worth of trades to restore the peg temporarily. While the effort succeeded briefly, the stability was not algorithm-driven as claimed. Rather, external interventions propped up the value, a critical detail not shared with investors. As a result, the SEC deemed these actions misleading, marking a significant breach of trust.

Read also: TerraUSD Collapse: Highlighting The Risks of Algorithmic Stablecoins

Unregistered Securities Sales

From January 2021 to May 2022, Tai Mo Shan engaged in secretive deals with Terraform Labs. In exchange for stabilizing UST, the company received discounted LUNA tokens, which were then resold on U.S.-based exchanges.

The SEC classifies LUNA and similar tokens as securities, which requires registration before they can be traded. By acting as a statutory underwriter and skirting registration, Tai Mo Shan violated securities laws. These actions exposed significant transparency issues, fueling broader concerns about accountability within the crypto industry.

Penalties and Regulatory Action

Under the settlement, Tai Mo Shan will pay over $123 million in fines, prejudgment interest, and civil penalties. The company is also subject to a cease-and-desist order. While accepting the penalties, Tai Mo Shan neither admitted nor denied the allegations, allowing them to close the case without fully accepting responsibility.