(Bloomberg) -- Tai Mo Shan Ltd., part of Jump Trading’s crypto unit, agreed to pay $123 million to settle a US regulator’s claims it misled investors about the stability of the failed TerraUSD algorithmic stablecoin.
The business also resolved claims that it broke securities laws while underwriting offerings of TerraUSD’s sister token, Luna, the Securities and Exchange Commission said in a statement Friday. Tai Mo Shan didn’t admit or deny the agency’s accusations in agreeing to settle.
TerraUSD was meant to have a constant $1 value via a complex mix of algorithms and trader incentives involving Luna. But at a key moment of strain, Tai Mo Shan’s large purchases helped to stabilize the coin, deceiving the market into believing that the algorithmic mechanism was working, the SEC said.
Tai Mo Shan made those purchases in May 2021 as TerraUSD’s value started tumbling below its $1 peg. An agreement with Terraform incentivized the firm to buy more than $20 million, according to the SEC’s cease-and-desist order, which accused it of negligence.
“Tai Mo Shan should have known that its trading would mislead the investing public to believe that Terraform’s arbitrage mechanism, which was coded into Terraform’s blockchain, alone raised the price of UST back up to $1,” the agency wrote.
From early 2021 to May 2022, Tai Mo Shan, a subsidiary of Jump Crypto, also served as an underwriter of Luna, an asset offered and sold as a security, the regulator said.
The company and an attorney for Tai Mo Shan didn’t immediately respond to messages seeking comment.
The case against a part of high-speed trading giant Jump Trading’s empire stems from an era known as crypto winter.
Jump Crypto’s intern-turned-President Kanav Kariya was one of several people who belonged to the so-called Luna Foundation Guard, the entity that oversaw TerraUSD’s reserves. Kariya left Jump Crypto in June, according to a post he made on X.
Court filings made by the SEC last year alleged Jump Crypto had made a secret deal with Terraform Labs to bolster TerraUSD, and that the trading firm reaped around $1 billion in profit as part of that relationship. Terraform later agreed to pay almost $4.5 billion to resolve an SEC lawsuit over its collapse, which wiped out $40 billion in investor assets and shook the cryptocurrency world.
--With assistance from Nicola M. White and stacy-marie ishmael.
(Updated with additional background from SEC order from fourth paragraph.)
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