Decentralized financial income platform Stablegains has been sued in a California court for allegedly misleading investors and failing to comply with securities laws.
On February 18, plaintiffs Alec and Artin Ohanian filed their complaint in the U.S. District Court for the central district of California.
In it he said that Stablegains, a DeFi platform launched in August 2021, diverted all customer funds to the Anchor Protocol without their knowledge or consent.
Anchor Protocol offers up to 20% yield on Terraform Labs’ algorithmic stablecoin, Terra USD (UST).
“As an early supporter and investor in TFL [Terraform Labs], Stablegains are very familiar with UST and LUNA. In fact, Stablegains, Inc. falsely advertises UST as a safe investment.
Stablegains offers a 15% profit to its customers, calculating the difference from the results offered by Anchor Protocol.
The plaintiffs also alleged that Stablegains violated federal securities laws, alleging that UST was a security:
“Stablegains clearly failed to comply with federal and state securities laws. Stablegains failed to disclose that UST was actually a security.
The complaint added that the company failed to register with the US Securities and Exchange Commission as a securities exchange or as a broker-dealer.
Ohanians stated that there will be “dangerous consequences for Stablegains customers,” after the collapse of the UST ecosystem in May 2022. The de-pegging of UST from the dollar affected the wider DeFi and crypto markets in May and ended up losing around $18 billion from the Terra/Luna ecosystem.
After the collapse, Stablegains allegedly altered its website and promotional materials to describe UST as “safe” and “fiat-backed,” effectively admitting that UST was none of those things, the complaint states.
Instead of liquidating assets and returning funds to customers, Stablegains, “retains the majority of devalued assets deposited by its users, unilaterally opting to redirect to Terra 2.0,” he added.
We are discontinuing the Stablegains service. Please withdraw the remaining funds.
See the anticipated timeline + letter from the team here: https://t.co/ebx4Z78sp1
– Stablegains (@stablegains) May 21, 2022
On May 22, Stablegains terminated its services, application, and support for the Anchor Protocol, asking users to withdraw their funds. As reported by Cointelegraph, Stablegains was hit with a similar lawsuit at the time.
related: The SEC sued Do Kwon and Terraform Labs for fraud
The specific amount sought in damages was not detailed, but the plaintiffs requested a trial.
On February 16, the SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly “organizing a multi-billion dollar crypto asset securities fraud.”