Jump Crypto's subsidiary, Tai Mo Shan, has agreed to pay a $123 million settlement with the U.S. Securities and Exchange Commission (SEC) over its involvement in stabilizing the TerraUSD (UST) stablecoin in 2021. The SEC accused Tai Mo Shan of misleading investors by purchasing $20 million worth of UST to maintain its dollar peg during a period of instability. The settlement, announced on Dec. 20, 2024, comes after an investigation into actions that the SEC claims created a false impression of the coin's stability.
In May 2021, TerraUSD experienced a "depeg" event where it lost its $1 value, triggering fears about its stability. Tai Mo Shan, working as part of Jump Crypto, stepped in to buy significant amounts of UST, which appeared to stabilize the coin temporarily. The SEC's investigation found that this intervention misled investors, who were led to believe that Terraform Labs’ algorithmic stabilization mechanism was functioning as intended. The $123 million penalty includes $86 million in disgorgement of profits made from these trades and $36 million as a civil penalty.
The SEC’s order highlights that Tai Mo Shan’s actions involved buying UST when the stablecoin was under pressure, making it seem that the algorithm could still stabilize the token despite the underlying issues. These purchases occurred in exchange for early access to Luna tokens, which Tai Mo Shan later sold. Terraform Labs, the company behind UST, had previously faced its own legal troubles, including a $4.4 billion settlement with the SEC following the collapse of its ecosystem.
UST's collapse in May 2022 caused widespread panic in the crypto market. A large sale of UST by a whale caused its price to fall from its $1 peg, and by May 10, 2022, it was trading at just $0.67. This revealed that the underlying reserves in Luna were insufficient to support UST, leading to the stablecoin’s total collapse and triggering investigations into Terraform Labs and its founder, Do Kwon.
The settlement with Tai Mo Shan is part of the SEC’s ongoing efforts to regulate the cryptocurrency market and enforce transparency. It also reflects the increasing scrutiny of stablecoins, with new legislation such as the Lummis-Gillibrand Stablecoin Act of 2024, which seeks to ban algorithmic stablecoins, as a direct consequence of UST's failure.
