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Stablegains' decentralized financial performance platform was prosecuted in a California court for allegedly misleading investors and violating securities laws.
On 18 February, complainants Alec and Artin Ohanian filed a complaint in the United States District Court for California's Central District.
In it they alleged that Stablegains, a DeFi platform launched in August 2021, diverted all of its customer funds to the Anchor Protocol without their knowledge or consent.
Anchor Protocol has delivered efficiencies of up to 20% on Terraform Labs, Terra USD (UST) algorithmic stablecoin.
“As a former fan and investor of TFL [Terraform Labs], Stablegains knows UST and LUNA quite well. In fact, Stablegains, Inc. has falsely announced that the UST is a secure investment."
Stablegains offered a 15% payout to its clients, earning the difference in returns offered by Anchor Protocol.
The plaintiffs are also claiming that Stablegains broke federal securities laws, alleging that UST was a security:
“Stablegains plainly failed to comply with federal and state securities laws. Stablegains did not reveal UST as a title."
The complaint further stated that the company had failed to register with the U.S. Securities and Exchange Commission, either as a stock exchange or as a securities broker.
The Ohaniens declared that there were "disastrous consequences for the clients of the stabilizers" after the collapse of the ecosystem in May 2022. UST de-pegged from the dollar causing a broader run on DeFi and crypto markets in May and an eventual loss of around $18 billion from the Terra/Luna ecosystem.
As a result of the collapse, the stabilizers reportedly altered their websites and promotional materials by claiming that they were "safe" and "supported by fiats", in fact conceding that none of these things were involved, according to the complaint.
Rather than liquidating assets and handing over money to clients, stablegains , The majority of the depreciated assets deposited by its users remained, by opting unilaterally to redirect to terra 2.0,' he added.
We interrupt the service of the stablegains. Please withdraw your balance.
See the anticipated timeline + a letter from the team here: https://t.co/ebx4Z78sp1
— Stablegains (@stablegains) May 21, 2022
On May 22, Stablegains discontinued its services, apps, and support for Anchor Protocol, requesting that users withdraw their funds. As reported by Cointelegraph, Stablegains was hit with a similar lawsuit at the time.
Related: SEC sues Do Kwon and Terraform Labs for fraud
The specific amount sought in damages was not detailed, however, the plaintiffs did demand a trial.
On Feb. 16, the SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly “orchestrating a multi-billion dollar crypto asset securities fraud.”
