A Utah resident has filed a lawsuit against Binance US and
its CEO, accusing them of falsely advertising TerraUSD as
a safe asset backed by fiat currency. The plaintiff named Jeffrey Lockhart
alleged that because Binance isn't registered as a securities exchange with the
US government, it has limited obligation to disclose information about assets
traded on its platform. "Crypto exchanges made massive profits by flouting
securities laws and causing real harm to real people," the law firm
representing Lockhart said, according to Reuters.
A Binance spokesperson told the news organization, however,
that the exchange is registered with the US Treasury Department's Financial
Crimes Enforcement Network and complies with all applicable regulations.
"These assertions are without merit and we will defend ourselves
vigorously," they said.
If you'll recall, TerraUSD's value collapsed in May, causing massive losses for investors who trusted its classification as a stablecoin that's supposed to maintain its value of $1 per coin. Unlike other stablecoins backed by real-world assets, though, TerraUSD is an "algorithmic" stablecoin that's not backed by fiat currency. Instead, it's backed by a cryptocurrency called Luna and has a mechanism in place to restore its value to $1 if it ever falls. Investors were enticed to invest their money into TerraUSD due to the opportunity to make money with the Anchor lending program, which promised annual yields of 20 percent for deposits of the coin. Terra's mechanism failed to protect its value, however, and it's currently being traded at less than one cent.
Lockhart is hoping for his lawsuit to be registered as a
class action on behalf of all investors who purchased Terra from Binance. The
world's largest cryptocurrency exchange also paused bitcoin withdrawals for a
few hours yesterday due to a "stuck on-chain transaction." That came
days after reports emerged, claiming that Binance had become a hub for
fraudsters and drug traffickers and had helped launder $2.35 billion in illicit funds.
(M.MOON. (2022, June 14). Binance sued over the collapse of the TerraUSD stablecoin. Engadget. Retrieved June 16, 2022, from https://www.engadget.com/binance-sued-over-collapse-terrausd-113503082.html)