Terraform Labs to make final pitch to jury as civil fraud trial wraps

By Jody Godoy

(Reuters) - Attorneys for Terraform Labs and its founder Do Kwon are expected to give closing arguments on Friday at a trial on claims that Terraform and Kwon defrauded investors before the collapse of their stablecoin shocked cryptocurrency markets in 2022.

The U.S. Securities and Exchange Commission accuses the Singapore-based company and Kwon of misleading investors in 2021 about the stability of TerraUSD, a stablecoin designed to maintain a value of $1. The regulator also accused them of falsely claiming Terraform's blockchain was used in a popular Korean mobile payment app.

Attorneys for Terraform and Kwon have previously argued to the jury that the SEC took statements out of context and relied on witnesses who aim to get whistleblower payouts if the SEC succeeds.

The regulator is seeking civil financial penalties and orders barring Kwon and Terraform from the securities industry.

Kwon, who was arrested in Montenegro in March 2023, did not attend the trial, which began March 25. Both the U.S. and South Korea, where Kwon is a citizen, have sought his extradition on criminal charges.

Kwon designed TerraUSD and Luna, a more traditional token that fluctuated in value but was closely linked to TerraUSD.

The SEC estimates that investors lost more than $40 billion on the two tokens combined when the TerraUSD peg to the dollar could not be maintained in May 2022.

Their collapse also dragged down the value of other cryptocurrencies, including bitcoin, and caused wider havoc in the crypto market, leading several companies to file for bankruptcy in 2022.

The SEC has said Kwon and Terraform secretly arranged to have a third party purchase large amounts of TerraUSD to prop up the price when the stablecoin slipped from its peg a year earlier, in May 2021. Kwon falsely attributed the recovery to the reliability of TerraUSD's algorithms, according to the regulator.

The SEC also has said Kwon and Terraform falsely touted Terraform's blockchain as being used to process and settle transactions between customers and merchants on the Chai payment app.

(Reporting by Jody Godoy in New York; Editing by Stephen Coates)