Take Kwon Do: DOJ Probes Terra Stablecoin Collapse

According to persons familiar with the situation, the Justice Department is examining the collapse of the TerraUSD stablecoin that occurred last year, adding the prospect of US criminal charges to the pressure on its creator, South Korean crypto entrepreneur Do Kwon.

The Federal Bureau of Investigation and the Southern District of New York have questioned former Terraform Labs team members in recent weeks and have sought to interview others, according to the persons.

The FBI and the SDNY are both divisions of the Justice Department, and the SDNY frequently takes the lead in high-profile financial crime prosecutions.

Last month, the Securities and Exchange Commission filed a civil fraud complaint in Manhattan federal court against Kwon and Singapore-based Terraform Labs. Kwon and the firm were accused in the claim of deceiving investors about the hazards of TerraUSD, a so-called stablecoin designed to maintain a price of $1. In May 2022, the coin lost its peg, triggering a chain reaction that wiped out $40 billion in market value and robbed several investors their life savings.

According to the sources, the Justice Department’s investigation overlaps with the SEC’s litigation. Some of the participants indicated that investigators inquired about the relationship between Chai, a South Korean payment service, and the underlying blockchain that Terraform constructed to enable TerraUSD.

In the lawsuit, the SEC accused Kwon of misleading the public by suggesting that Chai transactions were conducted on Terraform’s blockchain when, in fact, Chai used more traditional technology.

If Chai had used the Terraform blockchain to make payments, it would have been a rare instance of blockchain technology being applied in a real-world application. Chai Corp., the company behind the app, had stated that it would no longer use Terraform’s blockchain technology or digital assets to handle payments by 2021.

According to the SEC, Kwon’s assertions of real-world usage misled investors into purchasing Terraform’s cryptocurrencies.

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 SEC complaint, also filed in SDNY, charges Kwon with violating the Securities Act and the Exchange Act’s registration and anti-fraud provisions.

Information for this story was found via the The Wall Street Journal and the 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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