SEC Fines Jump Trading Subsidiary $123 Million for Misleading Investors About LUNA-UST
The SEC’s extensive investigation into Terraform Labs and Jump Trading has finally come to a conclusion. The Securities and Exchange Commission has fined Tai Mo Shan, a subsidiary of Jump Trading, $123 million for misleading investors and multiple fraudulent acts regarding LUNA-UST.
On December 20, 2024, the U.S. Securities and Exchange Commission (SEC) published a press release announcing its decision to charge Tai Mo Shan Limited, a subsidiary of Jump Trading.
The U.S. SEC charged Jump Trading subsidiary Tai Mo Shan Limited with misleading investors about the stability of Terra USD (UST) and acting as a legal underwriter in unregistered transactions in the LUNA crypto asset. As part of the settlement, Tai Mo Shan agreed to pay $123…
— Wu Blockchain (@WuBlockchain) December 21, 2024
The SEC accused Tai Mo Shan of misleading investors about the stability of Terra USD (UST), claiming that UST was an "algorithmic stablecoin" with a stable exchange rate. But in reality, as the crypto community has witnessed, UST could not hold the $1 mark, falling rapidly and causing the entire LUNA-UST ecosystem to collapse.
In addition, the SEC also discovered that Tai Mo Shan was the statutory guarantor in the distribution of LUNA, offered as an unregistered security.
This is the result of a large-scale investigation from 2023, when the SEC confirmed that Jump Trading was a "mysterious investment fund" that manipulated the price of LUNA-UST. And so began investigating the head of Jump Crypto, Kanav Kariya.
The SEC's targeting is said to be the reason why Mr. Kanav Kariya resigned as Chairman of Jump after 6 years of association, as well as the fund itself had to reduce the scale of crypto operations.
Specifically, the SEC accused Terraform Labs and Tai Mo Shan of reaching a secret agreement in May 2021 to "save the price" of UST when this stablecoin depreciated to 0.92 USD. Accordingly, Jump would spend money to buy UST on the market to reduce supply, thereby helping UST return to the 1 USD mark a few days later.
In return, Terraform Labs would change the terms of the LUNA loan agreement for Jump, helping the fund unlock tokens earlier. The amount traded included 61.4 million LUNA, with a selling price 99% lower than the market price at that time. Jump is said to have profited 1.3 billion USD thanks to unlocking LUNA early.
Terraform Labs and Do Kwon later asserted that the UST recovery was a testament to the effectiveness of the algorithmic stablecoin model, attracting more believers to the project. LUNA's price rose from $6 in late May 2021 to a peak of $116 in April 2022, just a month before it all came crashing down.
SEC Chairman Gary Gensler asserted:
“This incident reminds us that, time and again in the cryptocurrency market, investors have faced serious losses due to fraud.
Moreover, the impact of fraud spread throughout the market, eventually causing countless investors to lose their savings. Regardless of the company or organization, participants in the cryptocurrency market must always comply with securities laws and cannot deceive the public. Otherwise, investors will be the ones who will suffer the most."
Under the settlement, Tai Mo Shan agreed to pay $73,452,756 in compensatory damages, $12,916,153 in pre-trial interest, and a civil penalty of $36,726,378, for a total of $123 million.
However, Tai Mo Shan neither admitted nor denied the results of the SEC's investigation, but only agreed to cease all violations.
