A US regulator has sued blockchain platform Terraform Labs and its founder Do Kwon, alleging they raised billions of dollars from investors by selling securities to them under the guise of cryptocurrencies.
The US Securities and Exchange Commission (SEC) has accused Terraform Labs and its founder Do Kwon of running a multi-billion dollar fraud scheme. In a lawsuit filed in a court in the Southern District of New York, the regulator alleges that Terraform sold securities to investors under the guise of crypto assets, promising that the tokens would rise in value.
A native of South Korea, Kwon founded the Terraform Labs blockchain platform and was the main developer of the algorithmic stablecoin UST and the U.S. dollar-pegged cryptocurrency Luna (LUNA). Both tokens depreciated in May 2022, resulting in large losses for the entire market.
In particular, the situation led to the closure of the Three Arrows Capital hedge fund and hit crypto lenders Voyager Digital and Celsius Network. According to the analytical platform Chainalysis, the collapse of LUNA and UST tokens led to a loss of $20.5 billion.
Prior to its collapse, the TerraUSD stablecoin had a market capitalization of over $18.5 billion and was the tenth largest cryptocurrency by this indicator.
Since April 2018, Kwon has raised billions of dollars from investors by selling Terraform-issued cryptocurrencies and a range of other digital assets, many of which were unregistered securities, according to the SEC. The lawsuit alleges that Kwon misled investors about the stability of UST and claimed that his company’s tokens would appreciate in value.
“We argue that Terraform and Do Kwon failed to provide the public with complete and truthful information about the assets being sold, primarily about LUNA and TerraUSD, as is required for many crypto-assets that are securities,” said SEC Chairman Gary Gensler.
The commission also claims that the Terraform ecosystem was not decentralized. According to SEC Enforcement Director Gurbir Grewal, it was “just a scam backed by a so-called algorithmic stablecoin whose price was controlled by the defendants, not by any code.”
In South Korea, Kwon has been charged with violating the capital markets law and issued a warrant for his arrest. He was also subject to an Interpol Red Notice, requiring law enforcement around the world to look for the head of Terraform to take him into custody. He himself in social networks denies all the accusations and declares that he is not hiding, but does not disclose his whereabouts.
In 2022, Kwon moved from South Korea to Singapore but then left. In December, the South Korean authorities established that he was in Serbia, the South Korean Ministry of Justice initiated an appeal to Belgrade with a request for cooperation in investigating this case.