A jury in a U.S. District Court has found Terraform Labs and its co-founder, Do Kwon, liable for defrauding investors in crypto asset securities.

The court found earlier that the company and Kwon unlawfully offered and sold crypto asset securities, the Securities and Exchange Commission (SEC), which brought the lawsuit, said in a Friday (April 5) statement. 

“Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments,” SEC Division of Enforcement Director Gurbir S. Grewal said in the statement.

“Through these deceptions, the defendants caused devastating losses for investors and wiped out tens of billions of market value nearly overnight,” Grewal added.

Reached by PYMNTS, a spokesperson for Terraform Labs said Friday in an email: “We are very disappointed with the verdict, which we do not believe is supported by the evidence. We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps.”

The SEC is seeking civil financial penalties and orders barring Terraform and Kwon from the securities industry, Reuters reported Friday. A judge will hear from the SEC and the defendants and consider penalties in the coming weeks.

The case revolved around Terraform’s TerraUSD (UST), a stablecoin that was designed to maintain a peg to the U.S. dollar and that crashed in May 2022. TerraUSD had been the third-largest stablecoin by market cap before losing its peg.

The crash led to the bankruptcy of several high-profile crypto companies, including FTX, co-founded by Sam Bankman-Fried. It also increased the calls for global regulation of cryptocurrency.

“For all of crypto’s promises, the lack of registration and compliance have very real consequences for real people,” Grewal said in his Friday statement. “As the hard work of our team shows, we will continue to use the tools at our disposal to protect the investing public, but it is high time for the crypto markets to come into compliance.”