Tai Mo Shan Limited has been ordered to pay $123 million after being found negligent in misleading investors regarding the stability of Terra USD (UST), an algorithmic stablecoin issued by Terraform Labs PTE Ltd. The U.S. Securities and Exchange Commission (SEC) charged the firm for its role in propping up UST’s value during its collapse and for offering unregistered securities in connection with the crypto asset LUNA. Tai Mo Shan is a subsidiary of Jump Crypto Holdings LLC.
UST, marketed as maintaining a consistent value of $1 through algorithmic mechanisms, lost its peg in May 2021, triggering market upheaval. According to the SEC, Tai Mo Shan entered into a deal with Terraform Labs at the time to stabilize the UST value artificially. The arrangement involved Tai Mo Shan purchasing over $20 million worth of UST while Terraform provided discounted LUNA tokens as an incentive. These actions misled the market into believing UST’s stability was maintained by its algorithm, rather than through Tai Mo Shan’s significant interventions.
Further, from January 2021 to May 2022, Tai Mo Shan functioned as a statutory underwriter by acquiring LUNA tokens from Terraform for distribution. The SEC determined that the firm resold these tokens as securities on U.S.-based trading platforms shortly after their acquisition, violating federal registration requirements.
This case follows a prior ruling in April 2024, where Terraform Labs and its founder, Do Kwon, were found liable for fraud and unregistered securities offerings, resulting in a $4.5 billion settlement. SEC Chair Gary Gensler emphasized that the crypto market’s lack of compliance with securities laws frequently results in significant investor losses. He reiterated the necessity for market participants to adhere to regulations to prevent harm to investors.
As part of the settlement with the SEC, Tai Mo Shan agreed to pay $73.5 million in disgorgement, $12.9 million in prejudgment interest, and a $36.7 million civil penalty. While the firm neither admitted nor denied the SEC’s findings, it consented to cease and desist from further violations of securities registration and anti-fraud provisions.
