The $123M Lesson: How Tai Mo Shan's UST Manipulation Backfired
Most fraudulent schemes inevitably leave behind traces, which later force wrongdoers to pay many times over for their actions. This is especially true in Web3 and other network-related technologies: erasing a digital footprint is almost impossible. In this article, the Coinmooner will closely examine one case demonstrating the consequences of breaking the rules.
Recently, it was revealed that the U.S. Securities and Exchange Commission (SEC) fined a subsidiary of the crypto market maker Jump Crypto — Tai Mo Shan. The fine amounted to a staggering $123 million. The reason? Manipulating the price of the algorithmic stablecoin UST, part of the now-collapsed Terra project, developed by Do Kwon.
According to the SEC, the manipulations began back in May 2021. The regulator discovered that Tai Mo Shan conducted transactions aimed at hiding the fact that UST had lost its peg to the dollar. In a civil lawsuit, the SEC stated that after UST’s price dropped below $1, Terraform Labs (TFL) — the company behind Terra — enlisted Tai Mo Shan to purchase over $20 million worth of UST coins to prop up the price artificially.
At the same time, Terraform Labs claimed that the stablecoin's peg was maintained solely by its algorithmic mechanism. However, it was revealed that the price recovery was driven by manipulative trading operations conducted by Jump Crypto’s subsidiary.
These transactions allowed Tai Mo Shan to gain additional profits: the company could buy Terra’s native tokens (LUNA) at a discounted price. After UST stabilized, the token’s value rose, generating significant profits for the company.
Terra’s Collapse, Tai Mo Shan’s Fine, and the Fallout for Web3 Trust
However, this isn’t the only accusation Tai Mo Shan is facing. The SEC also alleges that the company distributed unregistered securities as LUNA tokens. According to the regulator, Tai Mo Shan acted as an underwriter, receiving tokens from Terraform Labs and quickly selling them on the market.
Although Tai Mo Shan did not admit guilt or deny the allegations, the company agreed to pay the full fine. Out of the $123 million, $73.5 million is allocated for compensating damages.
The Terra blockchain, developed by Terraform Labs, collapsed entirely in May 2022. LUNA and UST prices dropped to almost zero, leading to massive losses for investors. Following this, the project’s community decided to fork the blockchain. The old assets became part of the Terra Classic network (LUNC and USTC), while the new project retained the original name and tickers.
Terraform Labs’ founder Do Kwon is now under investigation, facing fraud charges in multiple countries. After his arrest in March 2023, he was detained in Montenegro, awaiting a decision on extradition — either to South Korea or the United States.
It’s worth noting that in 2023, the SEC had already fined Terraform Labs a record $4.5 billion. This became one of the most significant penalties in the crypto industry. As a result, the company announced its closure and handed over project management to the community.
Coinmooner will continue to monitor such cases to keep readers updated on the most critical events in the crypto world. We also remind everyone that security measures are especially crucial in the Web3 industry. Use advanced protection methods to safeguard your assets and avoid unwanted consequences.
Remember: blockchain keeps a permanent record of all transactions, meaning any violation can resurface even years later.
