The Securities and Exchange Commission (SEC) has allegedly begun an investigation into Terraform Labs, the Singapore-based firm that created the stablecoin TerraUSD, according to Bloomberg. The stablecoin was advertised as holding parity with the U.S. dollar prior to its collapse earlier this year.
The SEC is investigating Terraform Labs for potential violations of federal investor protection regulations in its marketing of stablecoin TerraUSD and cryptocurrency Luna, which also lost most of its value after the TerraUSD crash.
Regulators, including Treasury Secretary Janet Yellen and Comptroller of the Currency Michael Hsu, have pointed to the TerraUSD collapse as evidence of the lack of stability in crypto markets and evidence of a need for greater oversight and regulation.
SEC Chair Gary Gensler has taken an aggressive stance toward cryptocurrencies since taking the helm of the regulatory body. The regulator has brought a series of enforcement and legal actions against both cryptocurrency producers and crypto exchange intermediaries based on broader interpretations of existing law. It is still unclear how much of this enforcement action will be effective following Supreme Court decisions that have sought to reign in agency action that is not clearly delegated by Congress.
Terraform also is facing a potential class action suit from investors over the billions of dollars lost when the stablecoin collapsed. The lawsuit, filed in the U.S. District Court in the Northern District of California, alleges Terraform Labs engaged in the sale of unregistered securities and misled investors as to the stability of TerraUSD’s algorithm.