Tai Mo Shan Firm Charged for TerraUSD Fraud and Selling Unregistered Securities

• SEC fines Tai Mo Shan $123M for misleading investors about TerraUSD’s stability and violating securities laws.
• Terraform’s LUNA underwriter, Tai Mo Shan, deceived markets by artificially stabilizing TerraUSD’s $1 peg, SEC investigation reveals.
• SEC Chair warns of crypto fraud risks; Tai Mo Shan’s settlement highlights the urgent need for compliance and investor protection.

The Securities and Exchange Commission (SEC) charges Tai Mo Shan Limited for misleading investors and violating securities laws. The firm misrepresented the stability of TerraUSD, an algorithmic stablecoin issued by Terraform Labs. Tai Mo Shan also sold unregistered securities by acting as a statutory underwriter for Terraform’s crypto asset, LUNA.

Allegations and Fraudulent Activities

The charges stem from events in May 2021 when UST devalued from its $1 peg. Tai Mo Shan collaborated with Terraform to artificially stabilize UST. Terraform incentivized Tai Mo Shan by granting discounted LUNA purchase options. Consequently, Tai Mo Shan purchased over $20 million in UST, creating a deceptive market impression.

Moreover, Tai Mo Shan’s actions misled investors by implying Terraform’s algorithmic mechanism successfully maintained UST’s peg. However, the price stability resulted largely from Tai Mo Shan’s intervention. This raised concerns about transparency and market integrity.

Between January 2021 and May 2022, Tai Mo Shan acted as an underwriter for LUNA, which was offered as a security. Additionally, the company acquired and resold LUNA on U.S.-based crypto trading platforms without proper registration. Hence, the SEC found these activities to be in violation of federal securities laws.

Settlement and Broader Implications

In exchange for disgorgement, prejudgment interest, and penalties, Tai Mo Shan consented to pay a settlement of more than $123 million. It did not, however, acknowledge or refute the SEC’s conclusions. The SEC’s strong position on holding cryptocurrency companies responsible for protecting investors is reflected in this settlement.

The terrible effects of such fraud on the cryptocurrency market were shown by SEC Chair Gary Gensler. He emphasized that to protect investors from suffering large losses, securities laws must be followed.

In a crypto market that is changing, this case shows the importance of regulatory monitoring. The SEC’s investigation, led by Liz Canizares and other experts, revealed Tai Mo Shan’s role in perpetuating market deception.