Key Points
- Tai Mo Shan Limited, a Cayman Islands-based crypto trading firm, has been charged by the SEC for acting as an unregistered underwriter of LUNA tokens and engaging in deceptive practices during UST’s de-pegging event in May 2021.
- The firm agreed to pay $123 million in total, including $73.4 million in disgorgement, $12.9 million in interest, and a $36.7 million civil penalty.
Unregistered Securities Trading Violations
The Securities and Exchange Commission has found that Tai Mo Shan Limited, a subsidiary of Jump Crypto Holdings LLC, violated securities laws by acting as an unregistered underwriter for Terra’s LUNA tokens between January 2021 and May 2022. The firm received LUNA tokens through loan agreements with Terraform Labs and subsequently sold them on U.S.-based cryptocurrency trading platforms, profiting from these transactions without proper registration.
Deceptive Market Practices During UST’s First De-peg
In a significant revelation, the SEC detailed how Tai Mo Shan engaged in misleading trading practices during UST’s initial de-pegging event in May 2021. The firm entered into a verbal agreement with Terraform Labs on May 23, 2021, where they received accelerated vesting of LUNA tokens in exchange for purchasing over $20 million worth of UST. This trading activity created a false impression about the effectiveness of Terra’s algorithmic stabilization mechanism, which the public believed was solely responsible for maintaining UST’s dollar peg.
Settlement Details and Implications
The settlement represents one of the SEC’s significant enforcement actions in the aftermath of Terra/LUNA’s collapse. The firm must pay approximately $123 million in combined penalties and disgorgement, with the funds potentially being distributed to harmed investors through a Fair Fund. This action follows the SEC’s successful case against Terraform Labs, which was found liable for fraudulent offerings earlier this year and subsequently filed for bankruptcy in January 2024.
The case highlights the SEC’s continued scrutiny of crypto market participants and their role in the distribution of unregistered securities, particularly in the context of the Terra/LUNA ecosystem’s eventual collapse in May 2022. It also underscores the regulator’s focus on market manipulation and deceptive practices in the cryptocurrency space, even when such activities occurred years before a project’s ultimate failure.
