The founder of a now-defunct lending platform has agreed to pay over $10.5 million to settle charges from the U.S. Securities and Exchange Commission (SEC) regarding his use of investor funds to purchase millions of dollars in the stablecoin TerraUSD, which was bought before its collapse.
Duy Huynh, also known as Hu Yingchuan, told customers of his company MyConstant that their money would be used for a cryptocurrency-backed loan matching service with a yield of 10%, according to an order from the SEC on Tuesday.
The agency claims that, in reality, Hu used $11.9 million of customer funds to purchase the stablecoin TerraUSD (UST), which is pegged to the Terra blockchain. This stablecoin collapsed in mid-2022, leading to the evaporation of billions of dollars in value.
MyConstant is one of several cryptocurrency-related businesses affected by the Terra collapse, which is estimated to have drained half a trillion dollars from the crypto market.
Since the end of 2022, the company has faced regulatory action after California financial regulators accused it of violating state securities laws and ordered it to cease operations.
The SEC stated that Hu, a citizen of both Vietnam and the United States, agreed to pay over $8.3 million in illegal gains and $1.5 million in pre-judgment interest to repay MyConstant's customers.
He must also pay a civil penalty of $750,000 within 14 days, although he did not admit or deny the findings of the SEC's investigation.
According to the SEC, MyConstant was founded in 2018 and claimed to provide returns of 6% to 10% by pooling and lending customer funds, all backed by cryptocurrency.
It promoted the investment as "low risk" and raised over $20 million from more than 4,000 investors between September 2020 and November 2022, the agency said.
Hu allegedly spent $11.9 million to purchase TerraUSD and misappropriated about $415,000 of investor funds for personal use. When the token's price plummeted in May 2022, he lost over $7.9 million on his TerraUSD purchases.
The SEC claims that Hu then attempted to "falsely assure investors of the safety of their funds and incentivize them to reinvest in MyConstant" by sending emails that displayed summaries of fictitious loans from the company.
MyConstant ceased operations in mid-November 2022, citing the collapse of several crypto companies that year. Since then, it has returned $1.8 million to investors and placed all of the company's assets in a creditor trust.
The SEC did not detail how Hu used his TerraUSD holdings, but at the time the scheme was implemented, the Terra blockchain offered annual returns of up to 20% on UST through the Anchor Protocol's lending service.
The eventual collapse of Terra was due to a downturn in the crypto market and users withdrawing funds from the blockchain ecosystem.
TerraUSD was algorithmically pegged to the blockchain's token Terra (LUNA) to maintain its value at $1, but the drop in LUNA's price caused the stablecoin to decouple, triggering a death spiral for both tokens.
Terra co-founder Do Kwon is awaiting trial in the U.S. on multiple fraud charges related to the blockchain.
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Original article: “Crypto Executive Pays $10 Million to Settle SEC Claims Over TerraUSD Bet”
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