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Tai Mo Shan, a subsidiary of Jump Crypto, has agreed to pay $123 million to settle charges with the U.S. Securities and Exchange Commission (SEC). The SEC alleged that the company misled investors about the stability of TerraUSD (UST), an algorithmic stablecoin that collapsed in May 2022.
This settlement, announced on December 20, underscores the SEC’s intensified scrutiny of stablecoins and their operators in the cryptocurrency market.
SEC Charges: Misrepresentation of TerraUSD Stability
The SEC accused Tai Mo Shan of partnering with Terraform Labs in 2021 to purchase Terra LUNA at a significant discount. Additionally, the company allegedly spent $20 million to help maintain UST’s 1:1 peg to the U.S. dollar.
SEC Chair Gary Gensler commented:
“Regardless of the labels, crypto market participants should comply with the securities laws where applicable and not deceive the public.”
TerraUSD’s Collapse: A Turning Point in Crypto Regulation
Once the third-largest stablecoin by market capitalization, UST’s collapse revealed the vulnerabilities of algorithmic stablecoins. Unlike traditional stablecoins backed by tangible assets, UST relied on software algorithms and digital collateral to maintain its peg.
On May 8, 2022, a whale dumped $285 million worth of UST, causing the stablecoin to lose its peg and drop to $0.98. By May 10, UST had plunged to $0.67, sparking mass liquidations and panic among investors.
The failure of UST exposed the inadequacy of LUNA reserves to support its market capitalization, leading to the devaluation of both tokens.
This event triggered:
- Global regulatory scrutiny of algorithmic stablecoins.
- The introduction of the Lummis-Gillibrand Stablecoin Act of 2024, which bans algorithmic stablecoins in the U.S.
Legal and Financial Repercussions
The collapse of UST led to:
- A $4.4 billion settlement involving Terraform Labs, one of the largest enforcement actions in cryptocurrency history.
- A formal investigation into Terraform Labs and its founder, Do Kwon.
Fracture Labs Sues Jump Trading Over Alleged ‘Pump and Dump’ Scheme
Adding to Jump Crypto’s legal troubles, Fracture Labs, a crypto game developer, filed a lawsuit against Jump Trading in October 2024.
The lawsuit alleges that Jump Trading manipulated the DIO gaming token in a “pump and dump” scheme.
Key details include:
- Jump Trading acted as a market maker for DIO’s launch on HTX (formerly Huobi) in 2021.
- Fracture Labs provided 10 million DIO tokens (valued at $500,000) to Jump Trading for launch support.
- An additional 6 million DIO tokens ($300,000) were transferred to HTX.
- After the token peaked at $0.98, Jump Trading allegedly liquidated its holdings, causing the price to crash to $0.005.
Building Trust in the Crypto Ecosystem
These developments highlight the critical need for transparency and accountability in the cryptocurrency industry. For the latest insights into crypto regulations, market trends, and blockchain technology, visit CentBit.Online – your trusted source for crypto expertise in Bangladesh.
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