The Securities & Exchange Commission has charged Do Kwon and his Singapore-based crypto firm, Terraform Labs, with “orchestrating a multi-billion dollar crypto asset securities fraud”. The crypto executive has also been charged with fraud and other capital markets violations in his home country of South Korea.
“Repeating False And Misleading Statements”
Kwon’s Terraform Labs was the company behind Terra Luna and TerraUSD tokens, which collapsed dramatically last year. The US SEC has accused the company of raising billions from investors by promising “an interconnected suite of crypto asset securities”.
The price of the crypto token and its connected Luna fell to almost zero in May of 2022. Between 5 May and 13 May, Luna’s price plunged from $87 to just $0.0005. Its widely publicized failure also sent reverberations across the industry, with Bitcoin, Tether and Ethereum all falling in value as ‘cryptocrash’ trended online.
In a statement issued by the Chairman of the SEC, Gary Gensler alleged “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 TerraUSD”. Gensler added “that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors”.
Terraform claimed that Chai, a Korean mobile payment app, utilized the Terraform blockchain to process payments. “In reality, the crypto firm 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.”
Kwon founded Terraform Labs in 2018 along with Daniel Shin. In the same year, the pair launched the now-debunked crypto, Luna. In 2020, the firm released its stablecoin, TerraUSD, which was connected to Luna to help maintain its dollar peg. Yet when TerraUSD started collapsing, Luna followed suit, spelling disaster for many investors.
Do Kwon Nowhere To Be Found
Despite criminal proceedings in multiple jurisdictions, including a ‘red notice’ from Interpol, the exact location of Do Kwon is unknown. It is believed he was seeking refuge in Serbia in December, but the authorities have so far been unable to locate the crypto boss.
Kwon has since taken to Twitter to say: “For any government agency that has shown interest to communicate, we are in full cooperation and we don’t have anything to hide”.
The crypto executive also used Twitter to dismiss claims that South Korean prosecutors have frozen approximately $40 million in digital assets that belong to him.
Not An Isolated Incident
The demise of Luna and subsequent criminal proceedings should have been a wake-up call for the crypto industry. Yet it is not alone in its unscrupulous practices. 2022 saw the failure of crypto bank, Celsius Network, which went under with more than $2.8 billion in debt. Its founder has since been accused of running a Ponzi scheme.
The alleged fraud orchestrated by FTX is also thought to have cost investors many billions. Amongst other violations, the crypto exchange used customers’ money to pay the debts of its hedge fund, Alameda Research. Alarmingly, the world’s largest crypto exchange, Binance, has also recently been accused of commingling client funds with company cash.
With fresh scandals becoming increasingly prevalent in the digital asset industry, particularly among centralized crypto exchanges, many investors are turning to CFD crypto trading.
The derivative product allows traders to go long or short without taking ownership of underlying tokens. Crypto CFDs can also be traded with traditional brokers, which have a track record of serving stock and forex traders, for example, and which operate in line with established accounting and security standards.