Terraform Labs and its co-founder, Kwon Do-Hyung, better known as Do Kwon, are facing fraud charges from the U.S. Securities and Exchange Commission in the wake of the company’s meltdown last year that sent shockwaves through the cryptocurrency market.
The lawsuit alleges that Terraform and its CEO, through the marketing and pairing of the LUNA token and the TerraUSD stablecoin, engaged in a fraudulent scheme that resulted in “the loss of at least $40 billion of market value.”
Earlier last September, South Korea issued a warrant for Kwon’s arrest, with claims that he was residing in Singapore. However, the Singapore Police Force denied that Kwon was there. Reports then surfaced early this month, saying that authorities from South Korea had come to Serbia in an attempt to locate him.
Interpol had also issued a red alert for Do Kwon. A red alert calls international law enforcement agencies to find and temporarily arrest a person until they can be deported, turned over, or subjected to judicial proceedings.
Renowned investor Shin Hyun-sung, better known as Daniel Shin, and Kwon established Terraform in 2018 and launched the cryptocurrency LUNA later that same year. In 2020, the Singaporean-based startup introduced Terra USD, an algorithmic stablecoin pegged 1:1 to the U.S. dollar and backed by the LUNA cryptocurrency.
As Terra USD lost its peg and crashed last year, LUNA went down with it, wiping out the billions of dollars investors poured into the cryptocurrency.
The SEC accused Terraform and Kwon of misleading investors about the safety of their Terra USD holdings by failing to mention that a drop in TerraUSD pricing below its dollar peg would cause the collapse of the whole Terraform ecosystem.
“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD,” SEC Chair Gary Gensler said.
It added that Terraform had lied to its clients by claiming that the Korean e-mobile payment app Chai used the Terra blockchain for transaction processing by deceptively duplicating Chai payments onto the blockchain.