The SEC indictment states that Do Kwon and Terraform Labs set up a multi-billion dollar crypto securities fraud scheme, using LUNA-UST.
On the morning of February 17, the United States Securities and Exchange Commission (SEC) filed a civil indictment against Terraform Labs and CEO Do Kwon, the entity behind the LUNA algorithmic stablecoin and LUNA cryptocurrency, of organized a billion-dollar fraud scheme using crypto assets and securities, which resulted in the crash event causing $40 billion in losses.
SEC VS DO KWONhttps://t.co/o9NOAHGmkc
— db (@tier10k) February 16, 2023
The crimes committed by the SEC against Do Kwon and Terraform Labs include:
- Fraud in securities offering activities;
- Fraud related to securities offering;
- Offering unregistered securities;
- Offer to sell securities exchange contracts with unqualified individuals;
- Handling securities exchange contract transactions with unqualified individuals.
The SEC said Terraform Labs and Do Kwon raised billions of dollars from investors by “offering a group of crypto-related securities through multiple undeclared transactions.” Cryptocurrencies listed by the SEC include Terra (LUNA), stablecoin TerraUSD (UST) and mAsset, tokens that tokenize US securities created by Kwon through the Mirror Protocol. Mirror Protocol is also the reason why Do Kwon was subpoenaed by the SEC in September 2021, leading to subsequent legal controversies.
SEC Chairman Gary Gensler said:
“We allege that Terraform Labs and Do Kwon failed to provide investors with sufficient and truthful information about the securities they offered for sale, including LUNA and UST. We also accused them of fraud when they repeatedly made false statements to build investor confidence, leading to serious damage later on.”
Today we charged Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon with orchestrating a multi-billion-dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.
— US Securities and Exchange Commission (@SECGov) February 16, 2023
One of the false statements of Terraform Labs to scam investors mentioned by the SEC is the statement that “LUNA has been accepted by the popular Chai payment application in Korea”, while the cooperation relationship between The two sides have terminated since 2021. Meanwhile, the most prominent claim is that UST is a stablecoin that offers an attractive 20% deposit interest rate via Anchor Protocol, despite the fact that this model does not. sustainable for contributing to inflate the supply of UST to more than 20 billion USD.
Notably, the SEC confirmed that the LUNA-UST model had been broken since May 2021, a year before the catastrophic collapse in May 2022. At that time, the price of UST was depeg to $ 0.9, forcing Terraform Labs and Do Kwon to enlist the help of an unnamed “American crypto investment fund” to pump more money to save the price. After the successful rescue, Do Kwon and Terraform Labs again claim that the recovery of UST is proof that the LUNA-UST model is decentralized and stable, stablecoin prices are fully regulated by the algorithm behind after it and without human intervention.
The SEC documents against @stablekwon confirm what has been widely rumored: that there was a secret bailout in May of 2021. This means every subsequent representation of TerraUSD’s stability was an act of fraud.
The likely counterparty, IMO:
— David Z. Morris (@davidzmorris) February 16, 2023
The aforementioned “cryptocurrency investment fund” has already made a profit of $1.28 billion from LUNA thanks to early token purchase agreements in 2019 and 2020. Many theories in the crypto community suggest that the investment fund. The investor mentioned above is Jump Crypto, the unit that also jumped in to save the UST price in the crash in May 2022, but failed.
After the complete breakdown of LUNA-UST, the SEC alleges that Do Kwon and Terraform Labs still kept 10,000 Bitcoins from the Luna Foundation Guard, secretly transferred them to a Swiss institution and then sold them for cash, with the amount already paid. withdraw up to 100 million USD.
Since the collapse of LUNA-UST, Kwon has deliberately evaded the authorities of Singapore and South Korea, with rumors that he is staying in Serbia. The South Korean government, which ordered Do Kwon’s arrest and canceled his passport, recently sent a representative to Serbia to continue the search for Do Kwon. The CEO of Terraform Labs was recently reported to be preparing to return to the cryptocurrency market with a series of new projects.
Since the end of 2022, the SEC has continuously taken legal action against individuals / organizations that this committee considers to be improperly engaged in the cryptocurrency sector, including former FTX CEO Sam Bankman- Fried and FTX’s FTT token, the lending company Genesis and the Gemini exchange, the attackers on Mango Markets, the Kraken exchange also has a crypto staking model, and most recently, Paxos with Binance’s stablecoin BUSD.