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The SEC is investigating if TerraUSD's marketing violated investor protection regulations, report says

Brian Evans   

The SEC is investigating if TerraUSD's marketing violated investor protection regulations, report says
  • The SEC is investigating Terraform Labs' marketing practices prior to its stablecoin's collapse, sources told Bloomberg.
  • The move follows TerraUSD's loss of its one-to-one dollar peg that roiled cryptocurrency markets.

The Securities and Exchange Commission is investigating Terraform Labs for allegedly violating federal investor protection regulations, sources told Bloomberg.

Terraform Labs is the firm behind TerraUSD, a stablecoin that sent shockwaves throughout cryptocurrency markets last month when it lost its one-to-one dollar peg. Its sister token, Luna, also collapsed in response to TerraUSD's fall.

The SEC is exploring if Terraform Labs broke investment and securities products rules in its marketing, Bloomberg reported. The company didn't immediately respond to Insider's request for comment. But Terra told Bloomberg it was not aware of any SEC probe into any alleged violations.

The probe is the latest headwind for Terra. The SEC previously sought information from the firm in November 2021 in response to its Mirror Protocol, which the regulator alleged was an effort to sell securities without registering them.

Meanwhile, the company is being investigated for an employee's alleged embezzlement in South Korea, according to the Financial Times. South Korean authorities are already probing separate complaints that the company deceived investors. Terraform co-founder Daniel Shin denied the investors' accusations in a statement to the FT.

Terra has tried to rebound from its stablecoin collapse by issuing new coins via "airdrop" to existing wallets. Co-founder Do Kwon's proposal last month to split the Terra ecosystem in two in an effort to move away from its native stablecoin won approval last month. Terra's blockchain is now split into Luna Classic and Terra Classic with new native coins.

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