Terraform Labs founder Do Kwon
US financial regulators have charged fugitive South Korean cryptocurrency boss Do Kwon and his company Terraform Labs with “orchestrating a multi-billion dollar crypto asset securities fraud”.
Last year, the collapse of Terra Luna and TerraUSD tokens created by a Singapore-based firm resulted in a loss of over $40bn (£33.5bn) for investors. Terraform Labs and its founder, Do Kwon, have been accused by the US Securities and Exchange Commission (SEC) of failing to provide full and truthful disclosure to the public regarding the crypto asset securities, particularly Luna and TerraUSD. In a statement, SEC Chairman Gary Gensler stated that they had misled US investors about the stability of algorithmic stablecoin TerraUSD, which was intended to be pegged to the US dollar, and Terra’s sister token Luna. The SEC has filed a civil fraud lawsuit against them.
In a statement, Gurbir Grewal, the head of SEC enforcement, stated that the Terraform ecosystem was not decentralized or finance, but rather a fraudulent scheme supported by an algorithmic “stablecoin” whose price was controlled by the defendants instead of any code. The SEC is also charging Terraform and Kwon for selling unregistered securities. “We allege that they committed fraud by making false and misleading statements to gain investors’ trust, resulting in devastating losses,” he added. According to the SEC, Mr Kwon and his company raised billions of dollars from investors by selling them “an interconnected suite of crypto asset securities,” with many transactions being unregistered.
The digital-asset industry was shaken by the collapse of TerraUSD in May of last year when it lost its 1-to-1 peg to the dollar. Its sister token, Luna, dropped by over 97% after rescue efforts failed, leading analysts to label it a “death spiral.” The downfall wiped out a combined market value worth $60 billion at its peak, which affected companies with exposure to UST and Luna. A series of collapses has been linked to the crash, including the now-defunct Three Arrows Capital and digital asset brokerage Voyager.
“I am heartbroken about the pain my invention has brought on all of you,” said Mr Kwon at the time. The SEC complaint, which contained other allegations, did not disclose Mr Kwon’s location.
Terraform CEO Kwon is currently at the center of a manhunt, and his whereabouts are unknown. He became a fugitive after South Korean authorities issued an arrest warrant for him. In December, South Korean authorities stated that they believed he was in Serbia. While Mr Kwon had previously denied being in hiding, he did not reveal his whereabouts. “For any government agency that has shown interest in communicating, we are in full cooperation, and we don’t have anything to hide,” he said on Twitter. Mr Kwon faces charges of fraud and breaches of capital markets law in his home country.
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Author: Annabelle Liang
