Terraform Labs, Founder, Backers Sued on Claims That Investors Were Misled

An Illinois resident sued Terraform Labs, its founder Do Kwon and several VC firms that make up the Luna Foundation Guard (LFG) on claims that that the defendants violated federal securities laws and misled investors.

The plaintiff, Nick Patterson, filed a lawsuit seeking class action status on Friday in the Northern District of California in the hopes of recouping losses and any injunctive or punitive fees from a jury trial.

Patterson alleged both California state and federal law violations against the defendants.

The plaintiff said the “Terra Tokens,” (a catchall term for both UST, LUNA and other tokens in the ecosystem) resembled securities, even if investors may not have been able to recognize them as such, pointing to how Terraform Labs and the VCs behind the LFG marketed the project.

LUNA and UST both collapsed in dramatic fashion last month after the stablecoin lost its peg. An attempt to relaunch LUNA has so far failed to bring investors back to the project.

The filing, which includes screenshots from Twitter, heavily quotes Kwon and his dismissive reactions to other parties who claimed UST faced a depegging risk.

In addition to Terraform Labs and Do Kwon, the suit lists as defendants Definance Capital/ Definance Technologies Oy, GSR/GSR Markets Limited, Jump Crypto, Jump Trading LLC, Nicholas Platias, Republic Capital, Republic Maximal LLC, Three Arrows Capital, Pte. Ltd. and Tribe Capital.

Three Arrows Capital is facing financial woes of its own.