By Emma Roth, a news writer who covers the streaming wars, consumer tech, crypto, social media, and much more. Previously, she was a writer and editor at MUO.
The US Securities and Exchange Commission is suing the creator of the collapsed Terra blockchain protocol for securities fraud following last year’s meltdown that sent reverberations throughout the cryptocurrency industry. According to the SEC’s complaint, Terraform Labs and its co-founder Do Kwon “perpetuated a fraudulent scheme that led to the loss of at least $40 billion of market value.”
Last September, South Korea issued a warrant for Kwon’s arrest, while Interpol reportedly issued a “red notice” for him or a call to international law enforcement agencies to “locate and provisionally arrest a person pending extradition, surrender, or similar legal action.” Despite Kwon insisting that he’s “not on the run,” the complaint notes that “his current address is unknown.” South Korean police reportedly traveled to Serbia in an attempt to track him down earlier this month.
Kwon co-founded Terraform Labs in 2018 with Daniel Shin and went on to release the cryptocurrency Luna later that year. The company launched its algorithmic stablecoin TerraUSD in 2020, which was linked to Luna to help maintain its dollar peg. That’s why when TerraUSD started crashing last year, so did Luna, vaporizing the billions of dollars hopeful investors threw at the cryptocurrencies.
The SEC accuses Terraform and Kwon of misleading investors about the stability of TerraUSD, noting they failed to inform investors that the price of the coin falling below its dollar peg “would spell doom for the entire Terraform ecosystem.” Additionally, the agency claims that Kwon and Terraform falsely told their customers that Chai, the Korean electronic mobile payment app, used the Terraform blockchain to process payments.
“In reality, Chai payments did not use the blockchain to process and settle payments,” the lawsuit states. “Defendants deceptively replicated Chai payments onto the Terraform blockchain in order to make it appear that they were occurring on the Terraform blockchain, when, in fact, Chai payments were made through traditional means.”
“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,” SEC Chair Gary Gensler says in a statement. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
/ Sign up for Verge Deals to get deals on products we’ve tested sent to your inbox daily.
The Verge is a vox media network
© 2023 Vox Media, LLC. All Rights Reserved