Jump Crypto’s Tai Mo Shan Agrees to $123M SEC Settlement Over TerraUSD Manipulation

NEW YORK, December 23, 2024 ​- ​Tai Mo Shan Ltd., a subsidiary of Jump ​Crypto, has agreed to pay a $123 million agreement ​with the United States Securities and Exchange Commission (SEC) on misleading investor claims regarding the stability of the TerraUSD (UST) stable. ​SEC’s findings reveal that the company purchased significant quantities of UST during a market destabilization ​of ​2021 ​to artificially maintain its dollar weight, ​which deceives the ​public with regard to the stability ​of the data sheet.

Context of Terra USD collapse

TerraUSD, an algorithmic stable, was designed to maintain ​its $1 value through a complex ​mechanism involving its sister token, Luna, and ​arbitrary incentives. However, ​at a depopulation event in May 2021, the UST lost ​its wig, trading below $1 and raising widespread concern about its reliability. ​According to the SEC report, ​Tai Mo Shan intervened during this period by buying over US$20 million, creating a false impression that ​the algorithmic stabilization mechanism worked effectively.

The SEC investigation revealed that these actions were part of an agreement between Tai ​Mo Shan and Terraform Labs, the ​developer of UST and Luna. This agreement allowed Tai Mo ​Shan to quickly access the Luna chips, which he ​then sold with a ​profit. ​According to the ESA, these activities not ​only deceived investors but also violated ​securities laws. Terraform laboratories have ​faced significant legal challenges, including a $4.4 ​billion agreement ​with SEC on their role in the collapse of the ecosystem.

Details of ​the Regulation

The $123 million penalty imposed on ​Tai Mo Shan includes ​$86 million in profit splitting and a civil fine of $36 million. Although the ​company did not ​accept or deny the allegations, SEC pointed out that Tai Mo Shan should ​have known that its commercial actions would deceive investors. “Tai Mo Shan should have known that his business would ​deceive the investor public to believe ​that Terraform’s ​arbitration mechanism ​only increased the price of ​UST to $1,” SEC stated in its order of cessation and withdrawal.

In addition to ​its ​direct participation with the UST, ​Tai Mo Shan also served as a substitute for Luna ​offers, which the SEC classified as security. These two ​roles highlight the significant involvement of Jump ​Crypto’s subsidiary in the Terra ecosystem, which finally collapsed in May 2022, eliminating $40 billion in investment assets.

Increased impact on ​the cryptomoneda market

The TerraUSD collapse sent ​shock waves into the cryptomoneda industry, exposing vulnerabilities in algorithmic stables and ​triggering a wave of regulatory scrutiny. The failure has ​highlighted the inadequacy of the reserves of these stable currencies and the reliability of ​their mechanisms as a result of market stress. The fall of the UST has also led to calls for stricter regulations, including the ​Lummis-Gillibrand Stablecoin Act of ​2024, which aims to completely prohibit algorithmic ​stables.

ESA President Gary ​Gensler ​stressed the importance of transparency ​and investor protection in the rapidly changing cryptomoneda area. The agency’s actions against Tai Mo Shan are part of a broader crackdown on misleading practices in ​the cryptographic market. “This case demonstrates our commitment to hold market participants accountable when their actions deceive investors and undermine confidence in financial markets,” Gensler said at the announcement of the agreement.

Skip Crypto’s role and leadership changes

Tai Mo Shan’s participation in the TerraUSD crisis also raised questions about the ​broader operations of ​Jump Crypto, a high-frequency ​trading plant. According to court records, Jump Crypto had a secret agreement with Terraform Labs to support TerraUSD during periods of instability. This arrangement would have generated about $1 billion in profits for Jump Crypto. ​Kanav Kariya, ​a former Jump Crypto intern and member of the Luna ​Foundation Guard overseeing the TerraUSD reserves, withdrew ​from her role in June 2024.

The agreement ​with Tai Mo Shan follows Terraform Labs’ legal resolution earlier this year. Terraform and its founder, Do Kwon, ​which is still a controversial figure in the cryptomoneda industry, have been the subject of numerous research and requests worldwide. The collapse of its ecosystem not only resulted in investor losses, ​but also fueled the “winter crypto,” marked by the value of plumbing assets ​and regulatory hardening.

The future of stable parts regulation

The ​SEC’s action against Tai Mo ​Shan highlights the Agency’s approach to liability to the cryptomoneda market. Stablecoins, especially the algorithm, are now under intense scrutiny, as regulators seek to prevent a repetition of the TerraUSD fiasco. Legislative efforts such as the Lummis-Gillibrand ​Stablecoin Act and proposed international frameworks for ​stable chain governance are a turning point for industry.

Although the agreement resolves the ​accusations against Tai Mo Shan, ​the ​broader consequences for the cryptomoneda market remain important. Industry ​participants are now facing higher regulatory expectations, which are likely to bring together the business landscape and digital asset issuance in the coming ​years. In ​this case, it also stresses the need for strong internal compliance mechanisms in cryptometric companies to avoid regulatory barriers and protect investors’ interests.

The $123 million penalty, along with other high-profile implementation measures, sends a ​clear ​message to ​the cryptomoneda industry: regulators are committed to ensuring ​transparency and accountability, including in the most innovative and complex financial markets.