Kwonzi Scheme: SEC Charges Terraform, CEO Do Kwon For $40-Billion Dollar Fraud

The Securities and Exchange Commission (SEC) on Thursday charged Terraform Labs and its CEO Do Hyeong Kwon with plotting a multi-billion dollar crypto asset securities scheme using an algorithmic stablecoin and other crypto asset securities.

According to the SEC complaint, Terraform and Kwon raised billions of dollars from investors between April 2018 and May 2022 by marketing and selling an interconnected suite of crypto asset instruments, many in unregistered transactions.

These included so-called “mAssets,” security-based swaps designed to pay returns by mirroring the price of US company stocks, and Terra USD, a crypto asset security referred to as an “algorithmic stablecoin” that maintained its peg to the US dollar by being interchangeable with another of the defendants’ crypto asset securities, LUNA.

The complaint also claims that Terraform and Kwon offered and sold investors various ways to invest in their crypto empire, such as MIR—or “mirror” tokens—and LUNA itself.

“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 Terra USD,” said SEC Chair Gary Gensler. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”

Terra USD fell below its dollar peg in May 2022 and its LUNA coin crashed in value–overall losing around US$40 billion in the total Terra ecosystem. The collapse caused a wave of devaluation among leading crypto platforms like Voyager DigitalCelsius, and Three Arrows Capital.

Terraform Labs employees reportedly confirmed in June to the SEC that Kwon was sending off ₩100 billion won or about $80 million to secret wallets every month as operating expenses, alleging that the chief executive was cashing out every month before the Terra crash.

Despite this, Kwon has maintained that there is no “cashout”.

READ: What Did Do Kwon Do? CEO Allegedly Cashed Out US$80 Million Each Month Before Terra Crash

The instability of so-called stablecoin has been at the center of SEC’s intensifying crackdown on the crypto industry, mainly challenging that such digital assets are considered security and therefore fall under the purview of the regulatory body.

READ: SEC Vs. Paxos: Is Binance USD Stablecoin A Security?

Kwon is facing legal pressure in Singapore, South Korea, and the US for his role in the Terra crash, which sent tremendous shockwaves across the entire crypto assets industry. While he denies that he is on the run, Kwon has been in hiding since his native South Korea issued a warrant for his arrest and alerted Interpol in September.

The complaint, filed in the U.S. District Court for the Southern District of New York, charges the defendants with violating the Securities Act and the Exchange Act’s registration and anti-fraud provisions.

Information for this story was found via the other sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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