In May 2021, following a "depeg" of the algorithmic TerraUSD stablecoin, the token was able to stabilize back at its $1 peg, seemingly automatically. Behind the scenes, however, a subsidiary of Jump Trading's crypto unit, Tai Mo Shan, stepped in with $20 million worth of purchases to help stabilize the token, allegedly misleading investors in the token and its counterpart luna, according to an SEC complaint.
The SEC and Tai Mo Shan, presumably named after Hong Kong's highest peak, agreed that the latter should pay about $123 million in fines — over $86 million in disgorgement and about $36 million in a civil penalty — for its actions, which the regulatory agency alleges "caused investors to be deceived about the efficacy of Terraform’s arbitrage mechanism."
The $86 million figure was determined based on the amount of money, plus interest, the SEC says Tai Mo Shan profited after it stepped in with $20 million worth of buys of Terraform Labs' TerraUSD stablecoin (UST) in May 2021, after UST briefly depegged before seemingly automatically stabilizing. In exchange, Tai Mo Shan received unlocked luna tokens early, which it was able to sell into the market. The SEC had previously accused Tai Mo Shan of profiting $1.28 billion from the deal in an earlier complaint.
Though Terraform Labs founder Do Kwon touted how TerraUSD had survived a "black swan event" in "as intense of a stress test in live conditions as can ever be expected," failing to mention Tai Mo Shan's actions to prop up the coin had the effect of deceiving investors into believing the algorithmic stabilization mechanism functioned as expected, the SEC alleges.
Jump Crypto's president, Kanav Kariya, had pleaded the fifth when asked about the deal in a prior deposition. As part of the settlement, Tai Mo Shan will pay the penalty without admitting or denying the findings in the SEC's order.
"Tai Mo Shan should have known that purchasing UST and supporting its price in this manner misled the market about the stability of UST’s peg and the effectiveness of Terraform’s algorithm meant to maintain that stability," the SEC wrote in its order.
Terraform Labs, for its part, agreed to pay over $4 billion in fines in a settlement with the SEC following its ecosystem's collapse. The firm got permission from a U.S. bankruptcy judge to begin winding down in September of this year.
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