Terraform Labs and other crypto companies are facing a mass lawsuit for deceiving investors

After the Terra stablecoin incident, a class action lawsuit was filed against Terraform Labs and a number of other crypto companies over the collapse of terrausd (UST). The lawsuit against Terraform Labs (TFL) was filed by plaintiff Nick Patterson on behalf of others similarly affected and the law firm Scott+Scott LLP.

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A class action lawsuit has been filed against Terraform Labs and affiliated companies

Terraform Labs is accused of selling unregistered securities and defrauding investors, according to documents recently filed in the U.S. District Court for Northern California. In addition to TFL, Jump Crypto, Jump Trading, Republic Capital, Definance Capital, GSR Markets, Three Arrows Capital, Nicholas Platias and Do Kwon are also named in the lawsuit. Patterson and a group of plaintiffs accuse the defendants of "repeatedly touting the stability of UST."

Additionally, the lawsuit alleges that the tokens based on Terra were unregistered securities. "Terra Tokens are securities that were not registered by TFL prior to the sale," the plaintiff's lawyers maintain. The lawsuit further states that investors were told that UST and Anchor were stable.

Nicholas Platias, author of Anchor's white paper, is quoted as saying that Anchor's interest rate is "stable" and that the DeFi protocol offers "low-volatility yield with a reliable rate of return." "TFL and Luna Foundation Guard misled US investors about the stability of UST and LUNA, as well as the sustainability of Anchor," the plaintiff's argument states.

The plaintiffs also cite a tweet from Anchor Protocol's official Twitter account on March 17, 2021, which said:

Anchor is not your ordinary money market. The protocol offers depositors a stable, 20% APY interest and only accepts liquid staking derivatives as collateral provided by borrowers.

UST's collapse triggered a wave of lawsuits

The lawsuit against TFL and the hedge fund group follows the recent initiation of a lawsuit against Binance US, which is accused of selling unregistered securities and claiming that terrausd (UST) is a "safe asset". Additionally, another lawsuit has been filed against Coinbase regarding the impact of UST, in which the plaintiffs accuse Coinbase of issuing UST "just for another stablecoin." The lawsuit was initiated by Erickson Kramer Osborne and law firm Milberg Coleman Bryson Phillips Grossman LLP.

In addition to TFL, Nicholas Platias, Do Kwon, Jump Crypto, Jump Trading, Republic Capital, Definance Capital and GSR Markets, Three Arrows Capital (3AC) co-founder Su Zhu is accused of telling people to borrow against their BTC and put assets into Anchor protocol. “Seven days later, immediately after the UST collapse, this post was deleted,” the lawsuit states. 3AC is reportedly facing financial difficulties and members of the crypto community are even talking about insolvency.

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