Terraform Labs and Do Kwon face fraud charges

Do Kwon's whereabouts are unknown for now, although he's believed to be hiding out in Serbia or a nearby country.

Terraform Labs and Do Kwon face fraud charges
Source: Bitcoin.com

The backstory: Enter Do Kwon, the brains behind Terra and cryptocurrency TerraUSD, aka UST. In 2020, he came up with this stablecoin that promised to keep a 1-to-1 peg to the US dollar using some fancy algorithm and a sister token called Luna. Although UST was pegged to the dollar, the market set Luna's value. So if the price of UST went above US$1, there was an incentive to trade Luna for it at a profit. This meant the two coins could be interchanged to keep UST's value and circulation steady.

More recently: But, things didn't go according to plan, and both tokens took a nose-dive in May 2022. It's a classic case of if one falls, the other follows. On top of that, Kwon is now a wanted man in South Korea for his involvement in the TerraUSD mess and potentially breaking capital-markets law.

Last year, the crypto world was shaken up by the collapse of FTX and the Terra algorithmic stablecoin ecosystem. Terra's meltdown caused nearly US$40 billion in market value to vanish, leaving everyone wondering what happened.

The development: Now, Kwon and Terraform Labs (Terra's parent company) have been charged with fraud by the US Securities and Exchange Commission (SEC) for allegedly selling unregistered securities, including the TerraUSD stablecoin, and using shady tactics that erased billions in market value. It's also been said that Kwon and his team lied to investors about TerraUSD's stability and its connection to the South Korean mobile payment app, "Chai." Kwon has denied any wrongdoing on social media, and his whereabouts are unknown for now, although he's believed to be hiding out in Serbia or a nearby country. This case highlights the SEC's growing concern about stablecoins and their potential risks to the financial system.

Key comments:

"I am heartbroken about the pain my invention has brought on all of you," said Do Kwon, the founder of Terra, on Twitter.

"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 TerraUSD," said Gary Gensler, chairman of the US SEC. "We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors."

"We are continuing efforts to locate Kwon, and it's difficult to confirm anything related to the investigation at this stage," said the prosecution in Seoul.