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TerraUSD Meltdown Spurs Investor Lawsuit Against Binance.US

·3 min read

(Bloomberg) -- Binance.US was sued by an investor in TerraUSD who claims the cryptocurrency exchange flouted federal regulations, with “disastrous consequences” for its customers when the stablecoin crashed last month.

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Jeffrey Lockhart filed the lawsuit on Monday in federal court in San Francisco against BAM Trading Services Inc., which does business as Binance.US, alleging the exchange failed to disclose that TerraUSD is a security and seeking to represent other investors.

“Investors who purchased UST on Binance US were wiped out, learning quickly that, contrary to Binance’s U.S. advertisements, UST was not ‘safe,’ ‘stable,’ or ‘fiat-backed,’” Lockhart said in the suit, adding that Binance had taken down the ads, “effectively conceding that UST was none of those things.”

Because TerraUSD isn’t registered with the US Securities and Exchange Commission or a state regulator, Lockhart argues, buyers are deprived of “the precise disclosures designed to avoid a repeat of the 1929 stock market crash and the Great Depression that followed.”

Read More: How Billions in TerraUSD Went Up in Algorithmic Smoke

Sam Fisher, a spokesperson for the exchange, said the lawsuit had no merit.

“Binance.US is registered by FinCEN and adheres to all applicable regulations,” Fisher said, referring to the U.S. Treasury Department’s Financial Crimes Enforcement Network, adding that “we will defend ourselves vigorously.”

Bloomberg News reported last week that the SEC is investigating whether the marketing of TerraUSD violated rules instituted to protect investors. The stablecoin’s implosion last month was one of the biggest in crypto history, wiping out tens of billions of dollars in value and sending shock waves through markets.

Stablecoins can act as a haven for investors in the volatile cryptocurrency market -- when they work. TerraUSD was meant to maintain a 1-to-1 peg to the US dollar through an algorithm and trading in a related token called Luna.

Read More: SEC Investigating UST Stablecoin Blowup in Fresh Threat to Terra

The suit comes as Bitcoin, the world’s largest digital token, fell to its lowest value in a year and a half, amid a broader cryptocurrency sell-off, after a freeze on withdrawals by the Celsius lending platform heightened worries about crypto risk.

Lockhart, a resident of Utah, is asking for an injunction blocking Binance from offering TerraUSD for purchase or sale, as well as unspecified damages.

According to the suit, Binance itself has failed to register with the SEC as a securities exchange or broker-dealer, and it has continued to sell securities created by Singapore-based Terraform Labs, adding “insult to injury” when it started selling Luna 2.0, a new token controlled by Terraform, on May 31.

The case is Lockhart v. BAM Trading Services Inc., 22-cv-3461, US District Court, Northern District of California (San Francisco).

Read More: Crypto Market Sinks Below $1 Trillion After Latest DeFi Blowup

(Adds comment by Binance.US in second section and context on crypto declines in third.)

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