throbber
Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 1 of 72
`
`John T. Jasnoch (CA 281605)
`jjasnoch@scott-scott.com
`SCOTT+SCOTT ATTORNEYS AT LAW LLP
`600 W. Broadway, Suite 3300
`San Diego, CA 92101
`Tel.: 619-233-4565
`Fax: 619-233-0508
`Attorneys for Plaintiff and the Proposed Class
`[Additional Counsel on Signature Page.]
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`NICK PATTERSON, Individually and on Behalf
`of All Others Similarly Situated,
`Plaintiff,
`
`Case No.
`
`v.
`TERRAFORM LABS, PTE. LTD., JUMP
`CRYPTO, JUMP TRADING LLC, REPUBLIC
`CAPITAL, REPUBLIC MAXIMAL LLC, TRIBE
`CAPITAL, DEFINANCE CAPITAL/
`DEFINANCE TECHNOLOGIES OY, GSR/GSR
`MARKETS LIMITED, THREE ARROWS
`CAPITAL PTE. LTD., NICHOLAS PLATIAS,
`and DO KWON,
`
`Defendants.
`
`CLASS ACTION COMPLAINT FOR
`VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`DEMAND FOR JURY TRIAL
`
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 2 of 72
`
`Plaintiff Nick Patterson (“Plaintiff”), individually and on behalf of all others similarly
`situated, by Plaintiff’s undersigned attorneys, alleges the following based upon personal
`knowledge, as to Plaintiff and Plaintiff’s own acts, and upon information and belief, as to all other
`matters, based on the investigation conducted by and through Plaintiff’s attorneys, which included,
`among other things, a review of the various regulatory filings of Defendants, press releases, and
`public statements issued by Defendants, analyst and media reports, and other commentary analysis
`and publicly disclosed reports and information about Defendants. Plaintiff’s investigation into the
`matters alleged herein is continuing and many relevant facts are known only to, or are exclusively
`within the custody and control of, the Defendants (defined below). Plaintiff believes that
`substantial additional evidentiary support will exist for the allegations set forth herein after a
`reasonable opportunity for formal discovery.
`NATURE OF THE CASE
`This collapse was one of the most violent collapses in a long time,
`only comparable to Lehman’s collapse in 2008!
`Remi Teto (Member of the Governing Council of the Luna Foundation Guard)
`Plaintiff brings this Class Action Complaint (“Complaint”) under §§5, 12(a)(1),
`1.
`and 15 of the Securities Act of 1933 (the “Securities Act”), as well as under §§10(b) and 20(a) of
`the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 promulgated
`thereunder, 17 C.F.R. §240.10b-5, against Defendants TerraForm Labs Ptd Ltd. (“TFL” or the
`“Company”), Jump Crypto, Jump Trading LLC, Republic Capital, Republic Maximal LLC, Tribe
`Capital, DeFinance Capital/Definance Technologies Oy, GSR Markets Limited, and Three Arrows
`Capital Ptd Ltd. (collectively, the “Luna Foundation Guard”), and Individual Defendants Nicholas
`Platias and Do Kwon (together with the Luna Foundation Guard and TFL, the “Defendants”). This
`action is brought on behalf of a class consisting of all persons and entities, other than Defendants
`and their affiliates, who purchased Terra Tokens between May 20, 2021 and May 25, 2022,
`inclusive (the “Class Period”), and who were damaged thereby (the “Class”).
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`1
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 3 of 72
`
`TFL is a company that operates the Terra blockchain and its related protocol,1
`2.
`which hosts, supports, and funds a community of decentralized financial applications and products
`known collectively as the Terra ecosystem. TFL’s primary focus is developing, marketing, and
`selling a suite of digital assets and financial products within the Terra ecosystem, including the
`native and governance tokens2 within the Terra ecosystem, so-called “stablecoins,” a bevy of
`financial products such as “mirrored assets,” bonded assets, liquidity pool tokens, along with
`various protocols (e.g., Anchor, Mirror, etc.) to support and facilitate their sale. These digital assets
`are collectively referred to as the “Terra Tokens” and are worth tens of billions of dollars in total
`market cap. All of TFL’s decentralized applications are designed to manufacture a reason to use
`the Terra Tokens since there is no purpose for these digital assets other than as investments.
`3.
`Plaintiff and the Class paid fiat and/or cryptocurrencies in exchange for the Terra
`Tokens with the expectation of profit from either an increase in the price of particular Terra Tokens
`like Luna and the mirrored assets or from receiving interest payments for staking UST or other
`TFL governance tokens. This expectation was based on the efforts of Defendants to maintain the
`Terra ecosystem. Defendants sell or sold the Terra Tokens from the retained supply and used the
`proceeds from the sales to fund TFL, to reward investors, and as governance tokens. Even though
`the Terra Tokens bear all the hallmarks of being investment contracts and, thus, securities under
`the Howey test, no registration statements have been filed with the SEC with respect to the various
`Terra Tokens.
`
`1
`Akin to a company’s charter, a “blockchain protocol” is a piece of code that operates as a
`set of regulations and guidelines that govern the functioning of various parts of a blockchain
`company’s technology. Investors in TFL’s digital assets can gain governance rights over the Terra
`blockchain protocol by purchasing and staking those assets much in the same way that an investor
`gains voting rights in a public corporation by owning that corporation’s stock and voting at the
`shareholders’ meeting.
`2
`A “token” is a financial product that is contractually based (via a “smart” contract) and is
`created and uploaded permanently to a given blockchain. When investors purchase these
`products/contracts on a given blockchain, their expectation is that the general buying, selling, and
`exchanging of these tokens will function according to the terms of the original smart contract and
`in a manner similar to other tokens on the same blockchain. Thus, when a token owner transfers
`assets from one wallet address to another new wallet address, on the same blockchain, the owner
`reasonably expects that those assets will actually be transferred to the new wallet address. This
`expectation is much like an industry standard in that the same expectation applies to all current
`blockchains and tokens, not just the Terra blockchain.
`2
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 4 of 72
`
`On top of selling unregistered securities with the Terra Tokens, Defendants made a
`4.
`series of false and misleading statements regarding the largest Terra ecosystem digital assets by
`market cap, UST and LUNA, in order to induce investors into purchasing these digital assets at
`inflated rates.
`TFL repeatedly touted the stability of UST as an “algorithmic” stablecoin that is
`5.
`paired to the Terra ecosystem’s native token LUNA and the sustainability of the Anchor Protocol
`(“Anchor”) – a type of high-yield savings account whereby investors can “stake” or deposit UST
`with TFL in exchange for a guaranteed 20% APY interest rate. As a part of this promotional
`campaign, TFL formed the Luna Foundation Guard – a group six venture capital groups that
`promised to support and fund the Terra ecosystem and to “defend the peg” in the event that high
`volatility caused the UST/LUNA pair to become untethered from one another. The Luna
`Foundation Guard and its members Jump Crypto, Tribe Capital, Republic Capital, GSR,
`DeFinance Capital, and Three Arrows Capital acted on behalf of TFL to promote the stability of
`UST and mislead investors into believing that (1) the Luna Foundation Guard’s reserve pool would
`be sufficient to defend the peg against a proverbial run on the bank by UST/LUNA investors, and
`(2) that the Luna Foundation Guard would be able to maintain interest payments from the Anchor
`Protocol through a well-capitalized “Anchor Yield Reserve” fund.
`6.
`These promotions, along with the announcement of financial backing of major
`venture capitalists in the sector, were a siren song to both veteran and rookie crypto investors alike,
`luring them in with a purportedly “stable” digital asset in UST that would nevertheless provide
`outsized returns on investment via Anchor. The marketing of UST and Anchor was so effective
`that approximately $14 billion of UST’s market cap (75%) was deposited into Anchor at its peak.
`7.
`Between May 6, 2022 and May 9, 2022, however, structural infirmities specific to
`the Terra ecosystem exposed a crack in UST’s ability to maintain its peg to $1. The truth regarding
`the stability and sustainability of the UST/LUNA pair and the Anchor Protocol could not be hidden
`any longer from investors, and within a week, the price of UST and LUNA collapsed by
`approximately 91% and 99.7%, respectively.
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`3
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 5 of 72
`
`PARTIES
`
`Plaintiff
`8.
`Plaintiff Nick Patterson (“Patterson”) is a resident and citizen of Illinois, living in
`Chicago, Illinois. As set forth in the attached certification, Plaintiff Patterson purchased Terra
`Tokens, including UST, LUNA, ANC, Mirrored Assets, and Bonded Assets during the Relevant
`Period, and suffered investment losses as a result of Defendants’ conduct.
`Defendants
`9.
`Defendant TerraForm Labs Pte. Ltd. (“TFL”) is a Seoul-based company with its
`headquarters located at 80 Raffles Place, #32-01, UOB Plaza, Singapore 048624.
`10.
`Defendant Jump Crypto is a limited liability company incorporated in Delaware,
`with its headquarters located at 600 West Chicago Avenue, Suite 600, Chicago, Illinois 60654. In
`addition to providing funding to TFL and the Luna Foundation Guard, Jump Crypto also
`contributed to Wormhole, a bridge between blockchains that can be used to transfer digital assets
`from one blockchain to another. Wormhole unleashes Terra assets, particularly UST, into the
`Solana blockchains’ burgeoning DeFi ecosystem and presents a trust-minimized conduit for users
`to send assets between Terra and Ethereum as well. Upon information and belief, Jump Crypto
`used its relationship with Wormhole to secure a favorable exit from its UST/LUNA holdings prior
`to the complete collapse of the Terra ecosystem.
`11.
`Defendant Jump Trading LLC is a limited liability company incorporated in
`Delaware, with its headquarters located at 600 West Chicago Avenue, Suite 600, Chicago, Illinois
`60654.
`
`Defendants Jump Crypto and Jump Trading LLC are collectively referred to as
`
`12.
`“Jump.”
`Defendant Republic Capital (“Republic”) is a limited liability company with its
`13.
`headquarters located at 335 Madison Avenue, Suite 7E, New York, New York 10017.
`14.
`Defendant Republic Maximal LLC is a limited liability company, incorporated in
`Delaware with its headquarters located at 335 Madison Avenue, Suite 7E, New York, New York
`10017.
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`4
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 6 of 72
`
`Defendants Republic Capital and Republic Maximal LLC are collectively referred
`15.
`to as “Republic.”
`16.
`Defendant Tribe Capital (“Tribe”) is a limited liability company with its
`headquarters located at 2700 19th Street, San Francisco, California 94110.
`17.
`Defendant DeFinance Capital/DeFinance Technologies Oy (“DeFinance”) is a
`Finnish limited liability company with its headquarters located at Lönnrotinkatu 36 K 22, 00180
`Helsinki, Finland.
`18.
`Defendant GSR/GSR Markets Limited (“GSR”) is a foreign limited company
`registered in Hong Kong, with its headquarters located at Suite 5508, 55th Floor, Central Plaza,
`18 Harbour Road, Wanchai, Hong Kong.
`19.
`Defendant Three Arrows Capital Pte. Ltd. (“Three Arrows”) is a Singapore-based
`company with its headquarters located at 7 Suntec Tower One 038987, 21-04 Temasek Blvd.,
`Singapore.
`Defendant Nicholas Platias is the Head of Research and a “founding member” of
`20.
`TFL, a member of the Governing Council of the Luna Foundation Guard, and one of the co-
`founders/creators of the Anchor Protocol. Platias served as a consultant and spokesman for TFL,
`the Luna Foundation Guard, and the Anchor Protocol, has exercised control over TFL and directed
`and/or authorized, directly or indirectly, the sale and/or solicitations of the Terra Tokens to the
`public.
`
`Defendant Do Kwon is the co-founder and Chief Executive Officer of TFL and has
`21.
`been since 2018. Kwon is a resident of the Republic of Korea. Since its inception, Kwon has
`exercised control over TFL and directed and/or authorized, directly or indirectly, the sale and/or
`solicitations of the Terra Tokens to the public. Kwon graduated with a Bachelor of Science degree
`in computer science from Stanford University in California and travelled to the United States to
`conduct business on behalf of TFL, including to a digital asset and blockchain conference held in
`New York City in September 2021.
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`5
`CLASS ACTION COMPLAINT
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 7 of 72
`
`JURISDICTION AND VENUE
`This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
`22.
`§1332 because: (1) there are 100 or more (named or unnamed) class members; (2) there is an
`aggregate amount in controversy exceeding $5,000,000, exclusive of interest or costs; and (3) there
`is minimal diversity because Plaintiff and at least one Defendant are citizens of different states.
`This Court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.
`23.
`This Court may exercise jurisdiction over Defendants because they have continuous
`and systematic contacts with this District, do substantial business in this State and within this
`District, and engage in unlawful practices in this District as described in this Complaint, so as to
`subject themselves to personal jurisdiction in this District, thus rendering the exercise of
`jurisdiction by this Court proper and necessary.
`24.
`TFL appears to be actively conducting business within this District. Significantly,
`Defendant Platias – a resident of California – is a founding member of TFL and serves as its Head
`of Research. Platias, along with Defendant Kwon, authored the April 2019 LUNA whitepaper3 on
`behalf of TFL and serve as two of six members on the Luna Foundation Guard’s Governing
`Council. The June 2020 whitepaper for the Anchor Protocol was also co-authored by Platias.
`Relatedly, Platias wrote the “Introducing Anchor” opening statement that was published by TFL
`on July 6, 2020.4 As discussed at length below, the Anchor Protocol was at the primary driver of
`the Terra ecosystem’s collapse. Thus, the source of the alleged misconduct related to the Anchor
`Protocol, UST, and LUNA, as well as numerous misleading statements made on behalf of TFL,
`occurred within California and impacted its residents.
`25.
`In addition, as noted in court filings by the SEC concerning TFL’s Mirrored Assets
`(discussed below), TFL’s financial products “are offered and available for purchase by U.S.
`investors through Terraform’s web application” as well as on digital asset trading platforms. TFL
`
`3
`A “whitepaper” is a document created by blockchain companies that describe the project
`and the terms of its launch and operations. While whitepapers contain vastly less information than
`what is required in an SEC registration statement, they do represent the primary offering document
`for a blockchain-related project.
`4
`Nicholas Platias, Introducing Anchor, MEDIUM (July 6, 2020), https://medium.com/terra-
`money/introducing-anchor-25d782cbb509.
`6
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 8 of 72
`
`and Individual Defendants Kwon and Platias promoted the Terra Tokens and related protocols
`through, among other means, TFL’s website, web application, social media accounts, podcast
`interviews, and through U.S. media.5
`26.
`TFL’s origins are firmly rooted in California and began, upon information and
`belief, during Defendant Kwon’s time at Stanford. For example, TFL has had several funding
`rounds since its inception in 2018. According to TFL, the majority of the “Early VC” and “Seed”
`investors were California businesses. For example, TFL received millions of dollars of start-up
`and maintenance funding from the following California entities:
`a.
`Pantera Capital located in Menlo Park, California;
`b.
`Lightspeed Venture Partners located in Menlo Park, California;
`c.
`Blockchain.com Ventures located in Palo Alto, California;
`d.
`TransLink Capital located in Palo Alto, California;
`e.
`Coinbase Ventures located in San Francisco, California;
`f.
`Polychain Capital located in San Francisco, California; and
`g.
`Synapse Capital located in San Francisco, California.
`Anchor Protocol has similarly received millions of dollars in start-up funding from
`27.
`the following California entities:
`a.
`Alameda Research located in Berkeley, California;
`b.
`Dragonfly Capital Partners located in San Francisco, California;
`c.
`Pantera Capital located in Menlo Park, California; and
`d.
`Naval Ravikant, an investor located in Palo Alto, California.
`Likewise, one of the members of the Luna Foundation Guard – Defendant Tribe
`28.
`Capital – is also located in and operates out of San Francisco.
`
`5
`See, e.g., Michael P. Reagan, Fake Tesla, Apple Stocks Have Started Trading on
`Blockchains, BLOOMBERG NEWS (July 6, 2021), https://www.bloomberg.com/news/articles/2021-
`07-06/fake-teslaapple-stocks-have-started-trading-on-blockchains; Our mission
`is
`to bring
`decentralized monies to as many blockchains as possible: Terraform Labs CEO, YAHOO! NEWS
`(July 12, 2021), https://news.yahoo.com/mission-bring-decentralized-monies-many171201969
`.html.
`7
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 9 of 72
`
`Defendant Three Arrows Capital was initially established and headquartered in San
`29.
`Francisco, California, and maintains investments in several California-based cryptocurrency
`projects and businesses.
`30.
`Venue is proper in this judicial District pursuant to 28 U.S.C. §1391(b) because
`certain Defendants live and/or conduct business in this District, therefore, a substantial part of the
`events or omissions giving rise to the claims alleged herein occurred in this District.
`FACTUAL ALLEGATIONS
`
`A.
`
`The Terra Ecosystem
`1.
`TFL
`TFL is a Seoul-based company founded in 2018 by Defendant Do Kwon and Daniel
`31.
`Shin that, as noted by the SEC in its own investigation into TFL’s digital assets, “regularly
`transacts business in the United States, included by contracting with U.S.-based companies, such
`as a prominent digital asset-trading platform incorporated in Delaware. Several employees of
`[TFL] appear to reside in the United States, including Terraform’s General Counsel (located in
`Pennsylvania), its Business Development lead (located in Texas), its Head of Research [Defendant
`Platias] (located in California), and its Director of Special Products (located in New York).”6
`32.
`TFL operates the Terra blockchain, a platform upon which the Terra ecosystem’s
`decentralized financial products and services are developed and supported. These products and
`services take the form of “decentralized applications” and protocols built by TFL. With respect to
`financial products, TFL has three main types of digital assets that it created: (1) tokens that are
`native to the Terra ecosystem; (2) stablecoins; and (3) the various Mirrored Assets, Bonded Assets,
`and LP Tokens.
`33.
`According to South Korea’s Supreme Court Registry Office court documents, Do
`Kwon dissolved TFL’s headquarters on May 4, 2022, and the Seoul branch on May 6, 2022. The
`
`6
`SEC v. Terraform Labs PTE, Ltd., No. 1:21-mc-00810 (S.D.N.Y. Nov. 12, 2021),
`Declaration of Roger J. Landsman in Support of U.S. Securities and Exchange Commission’s
`Application for an Order to Show Cause and for an Order Requiring Compliance with Subpoenas,
`ECF No. 4.
`
`8
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 10 of 72
`
`decision came following a general shareholder meeting on April 30, 2022, with Do Kwon acting
`as the liquidator.7
`2.
`Do Kwon
`The New York Times described Defendant Kwon as “a trash-talking entrepreneur”
`34.
`that caused a “$40 Billion Crash.”8 One of Kwon’s go-to insults is to demean and delegitimize
`his detractors or critics of the Terra Tokens by dismissing them as “poor.”
`35.
`For example, on July 1, 2021, Kwon mocked a British economist, Frances Coppola,
`who criticized the algorithmic stablecoin model. Instead of addressing the concerns raised by
`Coppola, in particular, the charge that the algorithmic stablecoin model could not defend against
`a bank run, Kwon was dismissive and condescending, stating “I don’t debate the poor on Twitter,
`and sorry I don’t have any change on me for her at the moment.”9
`36.
`On December 30, 2021, the co-founders of a rival stablecoin, Maker DAO, posted
`a thread discussing predictions for the crypto sector in 2022. In particular, they predicted that
`“UST will collapse in a death spiral with LUNA hyper-inflating to try to cover the peg”10 and gave
`the following tongue-in-cheek remarks: “Look, UST and MIM are solid ponzis and I respect that.
`You can make good money off them for sure. But they are not built for resilience and they are
`going to 0 once the market turns for real . . . . Now stop trying to scam users looking for actual
`stability into being ur exit liquidity.”11 When asked if he was willing to place a bet that the
`MakerDAO founders were wrong, Kwon simply replied “I don’t gamble against the poor.”
`
`7
`See Kevin Helms, Do Kwon Dissolved Terraform Labs Korea Days Before Collapse of
`Terra LUNA, UST, BITCOIN (May 19, 2021), https://news.bitcoin.com/dokwon-dissolved-
`terraform-labs-korea-days-before-collapse-of-terra-luna-ust/.
`8
`David Yaffe-Bellany and Erin Griffith, How a Trash-Talking Crypto Founder Caused a
`$40 Billion Crash (May 18, 2022), https://www.nytimes.com/2022/05/18/technology/terra-luna-
`cryptocurrency-do-kwon.html.
`9
`https://twitter.com/stablekwon/status/1410491186196795398?s=20&t=WhXnvJmqblLyJePq
`laNsDQ.
`10
`https://twitter.com/hexonaut/status/1476649894479753238?s=20&t=2n6IPnOxhcpLu7CoEn
`DtOg.
`11
`DtOg.
`
`https://twitter.com/RuneKek/status/1478166276979793922?s=20&t=2n6IPnOxhcpLu7CoEn
`
`9
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 11 of 72
`
`In addition, UST/LUNA is not Kwon’s first trip around the failed stablecoin block.
`37.
`Kwon has had similar failures with previous attempts to market and sell a stablecoin and thus he
`knew or should have known that his conduct with UST/LUNA was likely to mislead investors and
`cause them financial harm. For example, in 2021, Kwon launched the Basis Cash (“BAC”) token,
`another algorithmic stablecoin project that sought and failed to maintain a $1 peg. A former
`engineer at Terraform Labs, Hyungsuk Kang, claimed that Basis Cash was a side project created
`by him and Do Kwon. Since Kwon’s previous algorithmic stablecoin failed, it is possible that he
`could have anticipated UST’s failure to maintain the peg.12
`3.
`The Luna Foundation
`On or around January 19, 2022, TFL announced the formation of the Luna
`38.
`Foundation Group – a Singapore-based non-profit organization – for the purpose of “facilitating
`the growth of the Terra ecosystem” and “improving the sustainability and stability of Terra’s
`algorithmic stablecoins.”13
`39.
`The announcement noted previous criticisms directed towards algorithmic
`stablecoins like UST, but the Luna Foundation Guard downplayed the “misconception” that
`algorithmic Stablecoins are “unsustainable.” The Luna Foundation Guard went on to state that a
`previous depegging that occurred in May 2021 was not a sign that UST was more unstable than
`disclosed, but rather, a learning opportunity that UST was able to capitalize on:
`By concentrating almost explicitly on bootstrapping the demand-side of
`algorithmic stablecoins, UST weathered a massive, reflexive drawdown in the
`LUNA price in May ‒ learning important lessons and improving upon its design
`and adoption strategy. Still, questions persist about the sustainability of
`algorithmic stablecoin pegs, which is something our community doesn’t hide
`from and tackles head-on.
`
`*
`*
`*
`In order to succeed, we need to continue supplementing the Terra economy
`with effective resources across multiple dimensions. These include everything
`from technical developer tooling to capital backing projects, educational materials
`
`12
`Sam Kessler and Danny Nelson, UST’s Do Kwon Was Behind Earlier Failed Stablecoin,
`Ex-Terra Colleagues Say, COINDESK (May 11, 2022), https://www.coindesk.com/tech/2022/05/
`11/usts-do-kwon-was-behind-earlier-failed-stablecoin-ex-terra-colleagues-say/.
`13
`The Intern, Formation of the Luna Foundation Guard (LFG), MEDIUM (Jan. 19, 2022),
`https://medium.com/terra-money/formation-of-the-luna-foundation-guard-lfg-6b8dcb5e127b#:~:
`text=We're%20pleased%20to%20announce,sustainability%20and%20stability%20of%20Terra's.
`10
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 12 of 72
`
`helping onboard new users and builders, and innovative mechanisms to support
`algorithmic stablecoin models amid volatility.
`
`[Emphasis added.]
`
`The Luna Foundation Guard’s so-called “core mandate” was to “buttress the
`40.
`stability of the UST peg and foster the growth of the Terra ecosystem. Building reserves that
`backstop the peg of algorithmic stablecoins amid volatility and funneling resources into research
`that further advances what’s possible with stablecoins . . . .”
`41.
`In addition to deploying “capital backing” to prop up TFL’s stablecoins and Anchor
`Protocol, the Luna Foundation Guard also was tasked with providing funding and grants for
`builders, researchers, community members, and developers working “in the interest of the Terra
`economy categorized into 3 primary groups: Open-Source Technology Development, Research
`& Education, and Community Growth.”
`42.
`The Luna Foundation Guard is overseen and operated by a “Governing Council,
`initially comprised of the following leaders and experts in the industry, which will expand to
`include leading builders in the Terra ecosystem.” The founding members of the Luna Foundation
`Guard’s Governing Council included: Defendants Do Kwon and Nicholas Platias from TFL;
`Kanav Kariya, the President of Jump Crypto (one of the six venture capital groups comprising the
`Luna Foundation Guard); Remi Tetot, co-founder of RealVision TV; Jonathan Caras, the Project
`Lead at Levana Protocol; and José Maria Delgado co-founder of Delphi Digital.
`43.
`The Luna Foundation Guard was initially funded with a 50 million LUNA gift on
`January 22, 2022, from TFL to “help bootstrap its stabilizing reserves and grants framework.”
`44.
`In February 2022, TFL announced that the Luna Foundation Guard closed a
`$1 billion private token sale for “use in establishing a UST Forex Reserve denominated in Bitcoin”
`to serve as collateral for the TFL stablecoins.14 This was the first of several rounds of funding that
`the Luna Foundation Guard provided to the Terra ecosystem.
`
`14
`Nick Rodriguez, Luna Foundation Guard (LFG) Raises $1 Billion for a_ Bitcoin-
`for Terra’s UST Stablecoin, PRWEB (Feb. 22, 2022),
`Denominated Forex Reserve
`
`11
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 13 of 72
`
`45.
`
`The Terra Tokens
`4.
`These various Terra Tokens are described further as follows:
`a.
`Native and Governance Tokens
`
` LUNA – launched in or around April 2019, LUNAa tokens are the native token for
`TFL. The Terra protocol runs on a Proof of Stake (PoS) blockchain, where miners
`need to stake the native token Luna to mine Terra transactions. Luna tokens are
`also the pair to the UST algorithmic stablecoin.
`
` ANC – is the governance token for the Anchor Protocol and it is minted by TFL on
`the Terra blockchain. ANC “is designed to capture a portion of Anchor’s yield,
`allowing its value to scale linearly with Anchor’s assets under management
`(AUM). Anchor distributes protocol fees to ANC stakers pro-rata to their stake,
`benefitting stakers as adoption of Anchor increases . . . .”15 ANC tokens are also
`“used as incentives to bootstrap borrow demand and provide initial deposit rate
`stability.” Notably, 100M ANC tokens have been “allocated to the creators of
`Anchor” (including Kwon and Platias). Investors in the Anchor Protocol receive
`their 20% APY on their UST deposits in ANC tokens, which can be subsequently
`exchanged for other cryptocurrencies.
`
`
`
`$WHALE – Whale tokens are a “social” digital asset that is backed by both tangible
`and rare NFTs.
`
` ASTRO – Astro is a governance token for a DeFi protocol built on the Terra
`ecosystem.
`
` APOLLO – Apollo is a governance token for a DAO that “governs a War Chest for
`meta-governance and capital investments in decentralized ecosystems” like the
`Terra ecosystem.
`
`https://www.prweb.com/releases/luna_foundation_guard_lfg_raises_1_billion_for_a_bitcoin_
`denominated_forex_reserve_for_terras_ust_stablecoin/prweb18511880.htm.
`15
`Anchor Token (ANC) whitepaper, https://docs.anchorprotocol.com/protocol/anchor-
`token-anc (last visited June 15, 2022).
`12
`CLASS ACTION COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 14 of 72
`
` XDEFI – XDEFI is a token associated with a non-custodial wallet/digital asset
`wallet company that supports the Terra ecosystem.
`
`
`
`
`
`
`
`$MINE – MINE tokens are the native token for the Pylon Protocol, a suite of
`decentralized finance savings and payments products powered by yield redirection
`on the Terra blockchain.
`
`aUST – A token provided when UST tokens are deposited into Achor Protocol.
`vUST – An arbitrage UST token that aims to enforce the UST peg by exploiting
`arbitrage opportunities.
`
` MIR – Mirror Token functions as a governance-type token for the Mirror Protocol.
`It allows investors to interact with Mirrored Assets (discussed below).
`Cryptocurrency markets are notoriously volatile, with intraday price and/or
`46.
`exchange rate swings of 10% in a few hours occurring regularly. These wild fluctuations make
`cryptocurrencies generally less suitable as a medium of exchange for routine transactions like
`purchases. Stablecoins purport to solve this problem by attempting to tie or “peg” their market
`value to an external collateral with less volatility, such as another currency (e.g., U.S. dollars),
`commodity (e.g., gold), or financial instrument (e.g., stocks, cryptocurrencies, etc.). The price of
`a stablecoin (including those developed by TFL) is supposed to always remain at $1, and
`developers of these digital assets have devised two primary ways to maintain price stability: over-
`collateralization with fiat reserves16 and algorithmic stablecoins.
`b.
`Stablecoins
`
` UST – TerraUS is an algorithmic stablecoin that operates through a pair of tokens
`(the stablecoin itself and another digital asset that backs the stablecoin) and a smart
`contract that regulates the relationship between the two (i.e., the algorithm). Instead
`of swapping UST for $1 in dollar reserves in with over-collateralized stablecoins,
`investors could exchange one UST stablecoin for $1 worth of TFL’s LUNA. But
`in order to maintain UST’s 1:1 parity with the U.S. dollar, TFL’s algorithm mints
`
`16
`Over-collateralized stablecoins maintain fiat reserves with enough cash or cash equivalents
`on hand to cover each respective stablecoin on a 1-to-1 basis. Si

This document is available on Docket Alarm but you must sign up to view it.


Or .

Accessing this document will incur an additional charge of $.

After purchase, you can access this document again without charge.

Accept $ Charge
throbber

Still Working On It

This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.

Give it another minute or two to complete, and then try the refresh button.

throbber

A few More Minutes ... Still Working

It can take up to 5 minutes for us to download a document if the court servers are running slowly.

Thank you for your continued patience.

This document could not be displayed.

We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.

Your account does not support viewing this document.

You need a Paid Account to view this document. Click here to change your account type.

Your account does not support viewing this document.

Set your membership status to view this document.

With a Docket Alarm membership, you'll get a whole lot more, including:

  • Up-to-date information for this case.
  • Email alerts whenever there is an update.
  • Full text search for other cases.
  • Get email alerts whenever a new case matches your search.

Become a Member

One Moment Please

The filing “” is large (MB) and is being downloaded.

Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.

Your document is on its way!

If you do not receive the document in five minutes, contact support at support@docketalarm.com.

Sealed Document

We are unable to display this document, it may be under a court ordered seal.

If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.


Access Government Site

We are redirecting you
to a mobile optimized page.





Document Unreadable or Corrupt

Refresh this Document
Go to the Docket

We are unable to display this document.

Refresh this Document
Go to the Docket