Terraform Labs Founder Do Kwon Charged with Fraud

Terraform Labs Founder Do Kwon Charged with Fraud

The SEC is taking action against Terraform Labs, a blockchain protocol that collapsed last year, and its co-founder Do Kwon for securities fraud. With the SEC’s complaint detailing this unlawful scheme resulting in investors losing more than $40 billion of market value, these careless actions are being taken seriously. This case sends an important message to all cryptocurrency businesses–following compliance standards will not be overlooked by regulators or risk substantial losses from fines and penalties in addition to investor funds.

Do Kwon Allegedly Lying About Terraform Stability

Last September, South Korean authorities issued an arrest warrant for Do Kwon, and Interpol released a “red notice” requesting international law enforcement agencies to locate him. Despite claiming he is “not on the run,” his current address remains unknown. In fact, South Korean police visited Serbia earlier this month in their efforts to apprehend Do Kwon.

In 2018, Do Kwon teamed up with Daniel Shin to launch Terraform Labs and released the cryptocurrency Luna shortly after. Then in 2020, their algorithmic stablecoin TerraUSD was launched into circulation, linked to Luna to maintain its dollar peg. Regrettably, when TerraUSD started plummeting last year, so did Luna – resulting in billions of dollars lost from investors who had placed trust and money in the two cryptocurrencies.

Terraform Labs Founder Do Kwon Charged with Fraud

The SEC has accused Terraform Labs and Kwon of deceiving their investors by not informing them that if the cost of the coin dropped below its dollar peg, it would completely destroy the whole Terraform system.

Do Kwon Also Lied About Chai

Moreover, the agency alleges that Do Kwon and Terraform Labs misled customers by claiming that Chai, a Korean electronic payment app, used their blockchain to process payments. The truth is that Chai transactions did not use any sort of blockchain technology; instead, they were facilitated through regular methods. To give an impression of legitimacy, the defendants purportedly duplicated these everyday payments onto the Terraform platform—even though no changes occurred in how users made those payments.

Chair Gary Gensler of the SEC has expressed that Terraform and Do Kwon have disregarded their duty to provide an accurate disclosure regarding several crypto asset securities, particularly LUNA and Terra USD. Furthermore, he claims these organizations committed fraud by repeatedly providing false information to deceive investors before leading them into financial despair.

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