[24][25] Following the crash in May 2022, the SEC investigation seeks to determine whether TerraUSD and its underlying algorithms worked as marketed, or if it violated federal investor protection regulations.

[24][25] Despite Terraform Labs being based in Singapore, TerraUSD falls under SEC's regulations as Americans bought the token to fund businesses or seek profit.

[26] On 17 May 2022, members of the Korean parliament and government authorities called for a potential parliamentary hearing regarding Terraform Labs and its founder Kwon, citing the lack of regulatory framework as the main reason for the impeded investigation on the events that took place.

Binance heavily promoted TerraUSD (UST) as a "safe and fiat-backed" stablecoin, which led to widespread adoption by investors seeking stability and high returns.

On May 7, 2022, **two large investors withdrew 375 million UST from Anchor Protocol**, triggering a wave of additional withdrawals and destabilizing the stablecoin’s $1 peg.

As the crisis unfolded, Binance suspended UST and LUNA withdrawals, citing excessive transaction volumes, which limited investors' ability to exit their positions during critical moments ([Nasdaq](https://www.nasdaq.com/articles/binance-suspended-luna-and-ust-withdrawals.-whats-going-on)).

Despite efforts to stabilize the peg, including interventions by Terraform Labs and the Luna Foundation Guard, the collapse became inevitable due to insufficient reserves and widespread market panic.

The incident has spurred calls for greater regulatory oversight of cryptocurrency platforms and their due diligence practices to protect retail investors from high-risk financial products marketed as “safe.” 1.

[Nasdaq Report on Binance Suspensions](https://www.nasdaq.com/articles/binance-suspended-luna-and-ust-withdrawals.-whats-going-on) In October 2024, the U.S. Securities and Exchange Commission (SEC) announced a $123 million settlement with Jump Trading, a key partner in the Terra ecosystem.

The SEC alleged that Jump Trading manipulated the market to maintain TerraUSD's (UST) peg to the U.S. dollar, creating the illusion of stability.

Binance and Coinbase have faced criticism for using arbitration clauses to block class-action lawsuits from users affected by the TerraUSD (UST) collapse.

[45][46] Similarly, Coinbase has been scrutinized for requiring users to settle disputes through private arbitration, limiting their ability to seek collective legal recourse.

[52][53] Briefs are being presented to the United States District Court for the Northern District of California under the counsel of Scott + Scott Attorneys at Law LLP, The Rosen Law Firm PA, Kahn Swick Foti LLP, and Bragar Eagel & Squire P.C., accusing Do Kwon and Terraform Labs of soliciting unregistered securities while misleading investors about their viability.

[8] In September 2022, a US$56.9 million class action was filed at the High Court of Singapore against Kwon, Terraform Labs, Nikolaos Alexandros Platias and the Luna Foundation Guard.

[54] In February 2023, US financial regulators charged Do Kwon and TerraForm Labs with "orchestrating a multi-billion dollar crypto asset securities fraud".

[56][57] The SEC had argued that Kwon secretly sought third-party financing after TerraUSD slipped from its stablecoin peg and then falsely stated in May 2021 that the recovery was because of algorithmic stability.

The complaint alleged that Binance engaged in misleading advertising by promoting TerraUSD (UST) as a "safe" and "fiat-backed" stablecoin, which later collapsed and caused significant financial losses for investors.

The complaint also claimed that Binance failed to conduct adequate due diligence on TerraUSD and other listed tokens, contributing to investor losses.

This legal action in France is part of a growing global scrutiny of Binance's role in the TerraUSD collapse, alongside other regulatory challenges the exchange faces in the United States and other jurisdictions.

[58] In June 2023, the U.S. Securities and Exchange Commission (SEC) filed 13 charges against Binance Holdings Ltd., its U.S.-based affiliate BAM Trading Services Inc. (doing business as Binance.US), and their founder, Changpeng Zhao.

[61] On 19 September 2022, the Seoul Southern District Prosecutors' Office said they had begun the procedure to place Kwon on the Interpol red notice list and revoke his passport.

[65] On 23 March 2023, Kwon was arrested at Podgorica Airport in Montenegro, which also did not have an extradition treaty with either South Korea or the United States, while attempting to travel to Dubai using falsified Costa Rican documents.

[70] One month later, KBS News reported that Kwon had sent 9 billion won, equaling USD $7 million, to law firm Kim & Chang prior to the collapse of TerraUSD.

[13][20] On 19 June 2023, Kwon and Terraform Labs' former finance officer Han Chang-joon were sentenced to four months' imprisonment by a Montenegrin court for using forged passports.

[81] According to the South Korean special prosecution office, Kwon was found to have withdrawn approximately $35 million worth of cash even after having been arrested in Montenegro.

"[92] On 12 May 2022, an individual investor who claims to have lost approximately $2 million allegedly trespassed into Kwon's high-rise condominium building to demand an apology.