Jump Crypto’s subsidiary, Tai Mo Shan, has agreed to pay $123 million to settle charges brought by the U.S. Securities and Exchange Commission (SEC) over its involvement in the collapse of the TerraUSD (UST) algorithmic stablecoin.
The SEC claims Tai Mo Shan misled investors about UST’s stability prior to its crash.
In 2021, the company reportedly arranged to buy Terra LUNA at a steep discount from Terraform Labs and purchased $20 million in UST to try and maintain its peg to the U.S. dollar. SEC Chairman Gary Gensler condemned the actions, emphasizing that the crash impacted investors and caused widespread damage to the crypto market. Gensler stressed the need for crypto market participants to comply with securities laws.
UST’s failure in May 2022, when it lost its peg after a large investor dumped $285 million in tokens, led to a massive sell-off and regulatory scrutiny. The collapse also prompted the Lummis-Gillibrand Stablecoin Act, which aims to ban algorithmic stablecoins.
As UST’s market cap grew far beyond its underlying reserves, it became clear that the stablecoin was not adequately backed, eventually leading to its total collapse. This event sparked an investigation into Terraform Labs and its founder, Do Kwon, resulting in legal charges and a major settlement of $4.4 billion.
