A complaint filed by the United States Securities and Exchange Commission says that Terra co-founder Do Kwon and Terraform Labs laundered more than $100 million worth of Bitcoin from the platform following its collapse in May 2022.
According to the SEC complaint archived In the US District Court for the Southern District of New York on February 16, Kwon and Terraform transferred more than 10,000 Bitcoin (BTC) from the platform and Luna Foundation Guard to a cold wallet, then to an account Swiss bank to convert fiat. The financial regulator said the Terra co-founder and his company could have access to more than $100 million in cash since withdrawals began in June 2022.
In addition to identifying Bitcoin’s reserve, the SEC said Kwon and Terra artificially restored TerraUSD’s (UST) dollar peg — the stablecoin had been one of the largest by market capitalization at the time the platform crashed. . According to the lawsuit, the platform requested a third party to buy “massive amounts of UST to restore the $1.00 peg” when it fell below $1 in May 2021, misleading investors as to its stability and reliability:
“UST’s price falling below its $1.00 ‘peg’ and not being quickly restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no asset reserves or any other backing.”
The SEC also claimed that several of the tokens involved in the Terra crash were “crypto asset securities” that fell within its regulatory purview. According to the SEC, these tokens included wrapped UST, LUNA, and LUNA, as well as MIR tokens and mAssets developed under Terra’s Mirror Protocol.
“Defendants solicited investors for these crypto assets by touting their profit potential,” the SEC said. “Defendants repeatedly stated that crypto assets would increase in value based on Terraform’s development, maintenance, and promotion of its blockchain, protocols, and the entire Terraform ecosystem.”
Terra’s business connections were also targeted by the financial regulator, as the SEC reported that Chai, a South Korean payment app linked to Terra at the time, “did not process or settle transactions on the Terraform blockchain.” . Rather, Terra allegedly reported transactions “that had already occurred in the real world using Korean won” while stating to the public that Chai transacted on the blockchain.
“In at least five cases between October 2021 and March 2022, there were one or more days where no transactions of any kind were confirmed on the Terraform blockchain,” the SEC said. “However, there is no evidence that the Chai payment app was not working during those periods.”
The SEC charged Do Kwon with fraud, and his charges include how he lied about the Terra-Chai relationship.
In October, I also questioned him for falsifying Chai’s transaction data.
Full interview here: https://t.co/xZyRGFBYnh pic.twitter.com/iQ4XT8q7X7
— Laura Shin (@laurashin) February 17, 2023
Related: ‘Wild’: SEC Chasing Terra Prompts Responses From Crypto Lawyers
Kwon continued to be active on his Twitter account following the Terra collapse despite many cryptocurrency users blaming him for the loss of funds and the apparent “ripple event” that led to multiple bankruptcies amid the cryptocurrency crisis of Terra. 2022. South Korean authorities reportedly sent two officers to Serbia in an attempt to track down Terra’s co-founder. At the time of publication, Kwon’s location is unknown.
