The US Securities and Exchange Commission (SEC) announced today that Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, has agreed to pay $123 million in penalties, disgorgement, and interest after being charged with misleading investors about the stability of Terra USD (UST) and unlawfully distributing LUNA crypto assets as unregistered securities.

The SEC’s investigation revealed that Tai Mo Shan played a key role in maintaining UST’s $1 peg following its devaluation in May 2021, in collaboration with Terraform Labs PTE Ltd. (Terraform). The purported "algorithmic stablecoin" UST had been marketed as maintaining its peg through an algorithmic mechanism. However, the SEC found that the stabilization was, in part, due to Tai Mo Shan’s purchase of more than $20 million worth of UST, incentivized by Terraform through discounted LUNA options.

According to the SEC, Tai Mo Shan’s actions deceived the market into believing that UST’s stability was being maintained solely through Terraform’s algorithmic mechanism. This followed public statements by Terraform suggesting that the stability mechanism was self-sufficient. The misleading conduct exacerbated investor losses during the collapse of UST’s peg, a development that rippled through crypto markets and wiped out significant investor savings.

The SEC also found that Tai Mo Shan acted as a statutory underwriter from January 2021 to May 2022, acquiring LUNA crypto assets from Terraform with the intent to distribute them. Tai Mo Shan resold these assets on US-based crypto trading platforms without registering the offerings, violating federal securities laws.

“This case reminds us that, too many times in the crypto markets, we’ve seen significant investor losses due to fraud,” said SEC Chair Gary Gensler. “Regardless of the labels, crypto market participants should comply with securities laws where applicable and not deceive the public. Otherwise, investors get hurt.”

Without admitting or denying the findings, Tai Mo Shan agreed to a settlement that includes $73.5 million in disgorgement, $12.9 million in prejudgment interest, and a $36.7 million civil penalty. The company has also agreed to cease and desist from violating the fraud and registration provisions of federal securities laws.