South Korea indicts Daniel Shin over failed Terraform Labs

The backstory: Last year, the crypto market had a bit of a shocker when algorithmic stablecoin TerraUSD, aka UST, and its sister token Luna collapsed. The thing is, stablecoins are meant to hold a steady value against another currency, usually being pegged to the US dollar. This is supposed to make them “stable” and less risky for coin owners. But in May, UST and Luna tanked, losing at least US$40 billion in market value. All of this kind of snowballed from bitcoin crashing to crypto hedge fund Arrows Capital, then crypto lender Celsius to FTX and others.

The crash was so bad that it accelerated a US$2 trillion downturn in the entire crypto market. Ever since, Daniel Shin and Do Kwon, the creators of Terraform Labs (Terra's parent company), have been under the microscope for their role in Terra’s demise.

More recently: South Korea issued an arrest warrant for Kwon in September. With that, Do Kwon left Singapore, where he was based, while insisting he wasn’t “on the run.” But authorities didn’t see it that way, saying he was clearly a fugitive. There was a lot of speculation for months about his whereabouts, but he was finally caught in Montenegro. Around that time, he was also charged by the US for fraud. Officials said that he started cashing out massive sums of money before the crash, including transferring about US$7 million to a law firm, which suggests he was expecting some legal trouble over the whole deal.

South Korean prosecutors also tried to arrest Shin in December, but a court rejected the warrant, saying he wasn’t a flight risk and unlikely to destroy evidence.

The development: Now, Shin and nine other people have been indicted in South Korea over the failed Terra crypto project. Prosecutors have frozen a massive 246.8 billion won (US$184.7 million) in assets from the group. Eight of them, including Shin, have been charged with illegal trading, while the other two were slapped with breach of trust charges. The prosecutors are really not playing around, saying the group caused "astronomical damage" to investors. They also said Terra was a "fabrication" from the start, and the algorithm meant to keep the price stable was faulty. Shin’s lawyer says his client isn’t to blame, pointing out that he left the company a good two years before Terra’s collapse and he’s been cooperating with authorities.

Key comments:

“Shin has nothing to do with the Terra, Luna collapse as he left the company two years before the fallout,” said Kim Ki-dong, Terra co-founder Daniel Shin's lawyer, in a statement. “He voluntarily returned to South Korea immediately after the collapse, and has been faithfully cooperating with the probe for over 10 months, hoping to contribute to fact finding.”

“Web3 is not a law-free zone,” said Damian Williams, Manhattan US Attorney last July. “Fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”

“I am not “on the run” or anything similar – for any government agency that has shown interest to communicate, we are in full cooperation and we don’t have anything to hide,” said Do Kwon, co-founder of TerraUSD on Twitter last September.