SINGAPORE The Singapore Court of Appeal has recalibrated the compensation framework for investors devastated by the May 2022 collapse of the algorithmic stablecoin TerraUSD (UST), ruling that a lower court relied on an "arbitrary and unrealistic" valuation of the asset during the crash.
The judgment, delivered on March 6, stems from the first-ever representative action heard before the Singapore International Commercial Court (SICC). Functioning similarly to a class-action lawsuit, the mechanism allows a subset of lead claimants to litigate on behalf of a wider group of affected investors. The implosion of UST and its sister token Luna once among the largest in the sector erased approximately US$40 billion in market value and precipitated a global cryptocurrency downturn.
While the ruling presented a mixed outcome for the immediate appellants who saw an application to adduce fresh evidence (SUM 29) dismissed alongside some specific individual claims legal analysts view the decision as a massive strategic and financial victory for the broader claimant group. The appellate court effectively rewrote the financial mechanics of the damages calculation, forcing the defendants to face hundreds of highly individualized assessments in the trial's next phase.
Rejecting the "Reasonable Investor" Standard During the proceedings, the respondents conceded that certain alleged misrepresentations regarding the stablecoin were fraudulent.
Delving into the mechanics of the damages, the Court of Appeal fundamentally altered the standard of reliance. Rejecting the defense's argument that a hypothetical "reasonable investor" should have recognized the fraud and liquidated their positions by May 11, the court ruled that reliance is inherently subjective. The legal timeline for mitigating losses now relies strictly on when each individual claimant actually discovered the fraud.
The "Locked-In" Principle and Market Reality The appellate court ruled the trial judge erred in using a rigid, higher cut-off price and lowed the price to US$0.60485 to calculate baseline damages. The panel acknowledged the extreme volatility of UST, noting that had all investors attempted to sell simultaneously, the resulting liquidity crunch would have collapsed the market entirely. Therefore, using a high assumed price to subtract from the victims' total damages was deemed unfair.
Crucially, the court formally recognized the operational realities of the crypto market, acknowledging that many investors were legally and practically "locked into" their UST holdings. If claimants can demonstrate they were unable to sell due to frozen exchanges, evaporated liquidity, or extreme slippage, the respondents could be held liable for the entirety of the subsequent losses, potentially calculating damages down to US$0.01 or zero i.e near 100% of their claim amounts.
The court clarified that the established Cut-Off Date and Time binds only the 10 representative appellants from the initial trial tranche. The wider group of represented claimants is now "at liberty to adduce evidence" proving their specific circumstances differed.
This ruling provides the wider claimant group with unprecedented leverage. Terraform Labs and its co-defendants now face immense financial exposure, as they must litigate individual cut-off times and specific mitigation circumstances for hundreds of separate claimants in the second tranche of the trial.
Costs and Legal Counsel Reversing the trial judge's order that each party bear its own costs, the Court of Appeal confirmed the claimants as the successful party. Having obtained a money judgment for a significant sum, the claimants were awarded 20% of their claimed costs.
The judgment was delivered by Justice Steven Chong on behalf of a three-judge panel that included Justice Belinda Ang and Beverley McLachlin, the former Chief Justice of Canada.
The investors were represented by Drew & Napier, led by Mahesh Rai. Terraform and the Luna
Foundation Guard were represented by Senior Counsel Tan Chee Meng and WongPartnership, while Do Kwon was represented by Keith Han and Oon & Bazul.
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