Investors Sue Crypto Yield Platform Stablegains For Falsely Promoting Terra UST

The crypto space is witnessing many lawsuits regarding losses of investors’ funds on different platforms. Most cases are related to the misuse and diversion of customers’ funds and the false promotion of crypto tokens to gain investors’ trust. 

A recent lawsuit involves a decentralized finance yield platform, Stablegains, and its customers. Investors alleged that the platform diverted investors’ money to another firm and also carried out a false promotion.

Crypto Firm Stablegains Sued For Seeking Personal Gains

Stablegains is facing a lawsuit from some investors who alleged that the platform misled its customers by falsely promoting their products and services. Also, the case accused the DeFi platform of seeking personal gains with investors’ money. These actions led to losing users’ funds and the platform’s closure. 

Alec and Artin Ohanian filed the case in the US District Court for the Central District of California on February 18. The plaintiffs stated that Stablegains was diverting users’ funds without their knowledge and consent. It moved the customers’ funds to Anchor Protocol, another platform.

Notably, Anchor Protocol offered a 20% yield to investors by using Terraform Labs’ algorithmic stablecoin, Terra USD (UST). On its part, Stablegains provided its users 15% yield from the returns it made from Anchor Protocol. This means it made personal gains through the difference in yields from its deals with Anchor Protocol.

False Promotions And Non-Compliance With Federal Securities Laws

According to the plaintiffs, Terra USD (UST) was security, and Stablegains had full knowledge of the stablecoin and its native token, LUNA. However, the DeFi yield platform failed to disclose such information to its customers. Instead, it promoted the stablecoin by advertising it as a safe investment for users. 

Apparently, Stablegains’ involvement with the UST and LUNA violates federal and state securities laws. Also, the lawsuit mentioned that the firm did not register with the US Securities and Exchange Commission to operate as a securities exchange or broker-dealer. 

The plaintiffs claimed that Stablegains’ operations and false representation to users exposed investors more when the UST ecosystem collapsed in May 2022. The algorithmic stablecoin lost its dollar peg and triggered a downtrend in the prices of assets in the crypto markets. As a result, investors and the entire crypto industry lost about $18 billion through the Terra (LUNA) implosion.

Further, the lawsuit stated that Stablegains failed to safeguard investors’ funds from the fall of the Terra/LUNA ecosystem. Instead, the DeFi yield platform tried to conceal its former links with UST. For example, it removed all previous promotional materials and information about UST being safe from its website.

Also, Stablegains failed to liquidate the remaining assets and return the funds to users. Instead, it returned most of the assets customers had previously deposited on its platform. The firm had the intention of moving the funds to Terra 2.0 privately.

Additionally, on May 21, 2022, Stablegains discontinued its services, apps, and support for Anchor Protocol. It notified its customers through a blog post and official Twitter page to withdraw their available funds.

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