The U.S. Securities and Exchange Commission (SEC) is calling for a conclusion to its legal battle with Terraform Labs and its co-founder Do Kwon, calling on a Manhattan judge to deliver summary judgment in the case.

In the agency’s view, the evidence “is clear, undisputed and overwhelming,” that the crypto mogul violated securities laws in the distribution of the Terra blockchain’s native cryptocurrency, LUNA, and its now defunct stablecoin TerraUSD (UST).

Do Kwon’s Lies, According to the SEC

Per the SEC’s Friday court filing, Kwon and Terraform schemed to “defraud” the public about the safety of its protocol and tokens – as well as the degree to which they were actually used.

For example, the firm falsely claimed that Terra had partnered with Chai, a popular Korean online payments platform, to process merchant transactions, while allegedly conducting millions of “fake transactions” to make the network seem more active than it truly was.

Kwon also lied to investors about the in-built stability of UST in May 2021, claiming its peg to the dollar “automatically self-healed” thanks to the ingenuity of its design and relationship with LUNA.

While the algorithmic “stablecoin” recovered from a temporary de-peg at the time, the SEC claims it wasn’t due to Terra’s design.

“Defendants had struck a secret side deal with a third party to push UST back up to $1, in exchange for selling that party LUNA at dramatically reduced prices,” the SEC claimed.

UST collapsed for good 12 months later, when a massive de-pegging event proved too much for the protocol to bear, and LUNA entered a hyperinflationary death spiral.

The Luna Foundation Guard sold over 80,000 BTC at the time in a failed bid to protect the peg, ultimately sinking the crypto market and sparking a series of contagious crypto fallouts throughout the year.

Breaking Securities Law

The SEC also said that the defendants issued LUNA and MIR to investors through public markets without first registering their sales with the agency.

The SEC took issue with how LUNA and the company’s other “crypto asset securities” were marketed to investors. Buyers were promised a share of transaction fees generated by the Terra blockchain, alongside appreciation in LUNA’s value as network adoption increased.

“Defendants pitched LUNA as an investment that would increase in value based upon Defendants’ efforts to increase usage of the Terra blockchain,” the SEC said.

As the agency has frequently highlighted in similar cases, a major prong of the Howey Test – a legal precedent for identifying investment contracts – necessitates that they must promise profits based on the efforts of another group.

In July, the SEC failed in its legal bid to label XRP as a similar security.