Another cryptocurrency firm is in trouble with the law.
The Securities and Exchange Commission (SEC) recently charged Singapore-based crypto fintech firm Terraform Labs and its CEO for defrauding investors in crypto schemes.
Do Kwon, Terraform Lab's CEO, is allegedly on the run from law enforcement despite Interpol issuing a "red notice" for his arrest in September 2022, per Coin Desk.
SEC Terraform Labs Fraud Lawsuit Details
The SEC mentioned in its announcement that it had charged Terraform Labs and Do Kwon, full name Do Hyeong Kwon, with orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.
SEC chair Gary Gensler said that the agency alleges 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,", especially in the case of LUNA and Terra USD. He added that the company and CEO committed fraud by repeating the false and misleading statements they made to build trust before causing significant losses for investors.
The agency's 55-page complaint covers the company's entire lifetime - from its establishment in April 2018 to its collapse in May 2022, per Coin Telegraph. During this time, Terraform and Kwon raised billions in investor dollars by offering and selling an "interconnected suite" of crypto asset securities, with many of them being exchanged in unregistered transactions.
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These crypto asset securities include "mAssets" and Terra USD. The former is a security-based swap designed to pay returns by mirroring the price of stocks of US companies, while the latter supposedly maintained its peg to the US dollar by being interchangeable for another of the investors' crypto asset securities, LUNA.
To be specific, the SEC alleged that Kwon and Terraform worked with an unnamed US trading firm to restore the UST's peg to the US dollar after it fell nearly 10 cents in May 2021.
This move proved fatal to the two cryptocurrencies as TerraClassicUSD (USTC) lost its peg to the US dollar, causing the two crypto's prices to effectively collapse to zero, causing the collapse in the digital asset market that wiped out an estimated value of $40 billion.
Furthermore, the SEC stated that Do Kwon and Terraform "touted and marketed" its Anchor Protocol, which the two advertised as a loaning process that pays out 20% interest on USTC deposits.
Where Is Do Kwon Now?
Although Terraform Labs was brought back from the brink of bankruptcy, accoding to Bloomberg, Do Kwon, a South Korean national, could not be brought back from allegedly being on the run since 2022. The Terraform CEO is believed to be in Serbia after leaving his Singapore residence sometime in September 2022 following a court from his home country issuing an arrest warrant for him.
Meanwhile, Do Kwon denied he is in hiding following the issuing of the arrest warrant and Interpol's red notice, per the Straits Times.
The Terraform Labs CEO mentioned on Twitter that he is not attempting to hide, citing his regular walks and visits to the malls as evidence of the fact.
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