The U.S. Securities and Exchange Commission (SEC) accused Tai Mo Shan Limited, a subsidiary of Jump Trading, of deceiving investors regarding the stability of Terra USD (UST) and serving as a legitimate underwriter in unregistered transactions using the LUNA cryptocurrency asset.
The charges come as one of the many that the SEC has levied in the Terra LUNA case. Additionally, Tai Mo Shan consented to pay $123 million as part of the settlement, which included penalties, interest, and disgorgement of earnings.
SEC Brings Charges Against Tai Mo Shan
Tai Mo Shan Limited was charged by the Securities and Exchange Commission on December 20th with deceiving investors regarding the stability of Terra USD (UST), a supposedly “algorithmic stablecoin” issued by Terraform Labs, after UST fell from its allegedly pegged exchange rate of 1 UST to $1.
Also, as a statutory underwriter for some of its offers and sales of LUNA, a cryptocurrency asset Terraform issued and sold as a security, the Commission accused Tai Mo Shan of offering and selling securities in unregistered transactions.
Tai No Shan Agrees On Settlement Money
With the allegations put forth by the SEC, Tai Mo Shan consented to pay $123 million as part of the settlement, which included penalties, interest, and disgorgement of earnings.
This includes a $36,726,378 civil penalty, $12,916,153 in prejudgment interest, and $73,452,756 in disgorgement as part of the settlement. Tai Mo Shan also consented to stop and desist from violating the registration and fraud requirements it had violated, but it did not acknowledge or dispute the SEC’s conclusions.
Why is Tai Mo Shan Being Charged?
In April 2024, Terraform and its founder, Do Kwon, agreed to pay $4.5 billion to investors after a federal district court found them guilty of fraud and unregistered securities sales.
Tai Mo Shan and Terraform entered into an agreement that encouraged Tai Mo Shan to buy UST in exchange for Terraform “vesting” Tai Mo Shan’s existing option to buy LUNA at a discount to its then-prevailing market price when UST devalued from its $1 peg in May 2021, according to the SEC’s order.
Tai Mo Shan attempted to bring UST back to its $1 peg on that day and in the days that followed, including by buying more than $20 million UST.
Given Terraform’s earlier claims that its algorithmic mechanism would keep UST at $1, Tai Mo Shan engaged in irresponsible trading by manipulating UST in a way that led the market to believe that Terraform’s algorithmic mechanism was stabilizing UST. In fact, the price was being stabilized, at least in part, by Tai Mo Shan’s substantial purchases of UST, which Terraform encouraged.
According to the regulator, Tai Mo Shan, a Jump Crypto affiliate, also functioned as an underwriter of Luna, an asset issued and sold as a security, from early 2021 until May 2022.