Binance.US Accused of Misleading Investors in Earth Class Action (LUNA)

“For those who are waiting for Planet Earth to become unstable… I’m sorry to say you will wait until the end of humanity.”

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It was with these self-satisfied words that Terra blockchain founder Do Kwon wanted to convince cryptocurrency investors to put their trust (and money) in TerraUSD (UST), a stablecoin that Kwon promised to always keep at $1. Unfortunately, Kwon’s trust was not enough to save UST and the rest of Earth as his project fell to zero.

Now, more than 2,000 investors say they lost their money because of deceptive marketing.

In a class action lawsuit filed on Monday in California, cryptocurrency exchange Binance.US was accused of misleading investors about the Terra blockchain ecosystem.

This process is the first in the United States related to Earth, whose UST and LUNC tokens have melted an estimated $40 billion of investor funds after falling to a few cents last month.

Read more: Binance temporarily suspends Bitcoin withdrawals

The class action, filed by US firm Roche Freedman LLP, alleges that Binance.US sold Terra’s UST, which was pegged to the dollar, as being more stable than it actually was. According to the lawsuit, when UST and the Luna Classic (LUNC) token dropped to zero in May, thousands of unsuspecting investors were taken by surprise. For lawyers, these losses are blamed on false advertising.

The suit also alleges that Binance.US is not registered as a broker or exchange, which may be a violation of securities laws, after listing what appears to be an unregistered security on the UST.

The target of the lawsuit is Binance.US CEO Brian Shroder.

If the action favors investors, some decentralized finance (DeFi) founders and centralized exchange CEOs will be concerned. However, this may encourage DeFi advocates who feel that, to avoid government censorship and onerous regulations, decentralized cryptocurrency finance tools are needed rather than centralized exchanges.

The Earth’s Decline

In addition to seasoned and affluent investors such as Paradigm and Hashed, Earth’s demise has emptied the wallets of thousands of unsuspecting retail investors. In the days after Earth collapsed, your biggest Reddit forum was filled with reports of suicide (and, at the start of the thread, various means of helping those who were suffering).

The forum was also highly critical of Do Kwon, Terra’s loudmouth co-founder. According to some Earth observers, he is the main culprit for promising that the UST would stay at $1. According to an interview with Bloomberg, while Kwon was guaranteeing the token’s security, he was developing a system that observers, like Kevin Zhou, of the Galois Capitol, said it would certainly fail.

Despite this questionable base, Kwon promoted the security of UST (and Luna’s token) constantly on social media, dismissing critics like Zhou.

Even as the UST started to lose indexation to the dollar (few days before it plummeted), Kwon tweeted: “Anonymous, you can hear crypto Twitter influencers about the UST losing index for the 69th time or you can remember that they are all poor now and go running in the street”.

Ridiculing critics with adjectives like “poor” was commonplace for Kwon, but over the next few days, the founder was eerily quiet as his ecosystem melted.

The question now is whether Kwon or his company will join Binance.US and face potential legal penalties in their role promoting Earth.

A government panel is already waiting for him in South Korea and the US Securities and Exchange Commission (SEC) has been on Terraform Labs’ trail for years. According to reports, a few months ago, Kwon moved to Singapore, but today’s class action suggests he will soon be the subject of legal battles around the world.

Still, Terraform Labs — Kwon’s company that played a pivotal role in creating Earth’s ecosystem — has yet to face such a collective action.

Apparently, you won’t have to wait long.

According to FatMan, a member of the Terra Research Forum and Terra critic with a large following on Twitter, a similar lawsuit against Terraform Labs should appear and will likely be similar to this one.

FatMan helped orchestrate Monday’s action by organizing a group of 2,000 Earth investors who were harmed and claim to have been duped by various entities.

In an interview with CoinDesk, FatMan said, “We are going to start filing mediations and class actions against various exchanges. I will help with contacts (talking to victims) but I have no real role in the lawsuits against exchanges. After that, we will file a lawsuit against TFL/Jump.”

In the Binance.US lawsuit, FatMan said: “Centralized exchanges have become quite accessible to the general public — even my parents use them — and because of that, it is morally necessary for them to abide by standards of trust and risk reporting. Telling people that an asset is pegged to a fiat currency when it is not is fraud.”

“Telling people that a currency is pegged to the dollar at a 1:1 ratio and selling it alongside USDC and USDT without reporting the relevant risks is dishonest. People were involved with promises of ‘stable and secure income’, but no attempt was made to explain to them what they were buying. This is morally irresponsible and, in my opinion, should be illegal.”

From now on

If the action favors investors, this moment will be decisive in defining the legal status of DeFi, which, until then, has managed to avoid clear regulations and government oversight.

Furthermore, the fact that today’s class action focuses on a centralized exchange as the culprit for advertising a token — and not the organization that launched it — is going to have implications for DeFi going forward. It could be a sign of a world where centralized exchanges are forced to more carefully evaluate the tokens they support on their platform.

How far will cryptocurrencies go? What’s the best way to buy them? We have prepared a free class with step by step. Click here to watch and receive InfoMoney’s cryptocurrency newsletter

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