Crypto Yield Platform Stablegains Sued for Misleading Investors

News | February 22, 2023 By:

On Saturday, February 18, 2023, a lawsuit has been filed in the United States District Court for the Central District of California against crypto yield platform Stablegains for allegedly misleading investors and violating securities regulations.

Stablegains is an investing platform founded in August 2021 and based in Middletown, Delaware. The company promised users a 15% interest on their deposits by placing the funds in “safe” assets that may provide high profits.

According to the lawsuit, Stablegains was diverting users’ funds without their knowledge and consent. The plaintiffs allege that Stablegains moved all of its customer funds to the Anchor Protocol, which offered yields of up to 20% by using Terraform Labs’ algorithmic stablecoin, Terra USD (UST).

“In a blog post published by the Company in August 2021, Stablegains claimed that “Anchor’s deposit interest rate usually oscillates between 18% and 20%,” the lawsuit said. “Stablegains pays its customers 15% and pockets the difference for handling “the technicalities of accessing Anchor on [users’] behalf” and covering transaction fees incurred when accessing Anchor.”

The plaintiffs also allege that Stablegains failed to comply with federal and state securities laws.

“Stablegains failed to disclose that UST is in fact a security, and that it is investing its depositors’ funds in these securities, even though (i) there is no registration statement in effect for them, and (ii) Stablegains, inc. itself has refused to register with the U.S. Securities and Exchange Commission (“SEC”) either as a securities exchange or as a broker-dealer,” the lawsuit said. Stablegains’ failure to comply with the securities laws, and its false advertisements of UST, have led to disastrous consequences for Stablegain s’ customers: in May 2022, in the span of just a few days, UST lost essentially all its value — a loss of approximately $18 billion. Investors who had deposited millions of dollars with Stablegains quickly learned that contrary to Stablegains’ advertisements, UST was not “safe,” “stable,” or “fiat-backed.”

Following the fall of the Terra/LUNA ecosystem, Stablegains allegedly “altered its website and
promotional FAQs touting UST as “safe” and “fiat-backed,” effectively conceding that UST was none of those things.”

Stablegains also failed to liquidate the remaining assets and return the funds to depositors. The lawsuit alleged that it “retained the majority of the devalued assets deposited by its users, unilaterally opting to redi rect them into Terra 2.0, a new iteration of cryptocurrency on the Terra blockchain.”

Plaintiffs are seeking damages, including transaction fees, for each transaction in which any UST was purchased with their money and then sold at a loss, as well as any associated costs, attorneys’ fees, and interest.

A copy of the filing can be found here.