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Terraform Labs Founder Do Kwon Faces Fraud Charges After Montenegro Arrest

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The founder of Terraform Labs, Do Kwon, has been arrested by Montenegrin police at an airport with falsified documents. This news comes after Kwon’s location had been a mystery for months, and he had been on an Interpol wanted list in connection with last year’s TerraUSD collapse. Kwon is also facing an investigation in South Korea and has already faced civil charges filed by the U.S. Securities and Exchange Commission (SEC).

Allegations of Market Manipulation & Fraud On Terraform Labs Founder 

Federal prosecutors in New York have charged Kwon with fraud, conspiracy to defraud, commodities fraud, securities fraud, wire fraud, and conspiracy to engage in market manipulation. 

The complaint alleges that Kwon made a number of “untrue and misleading statements of material fact” over several years, citing T.V. appearances and tweets from accounts tied to Terraform Labs.

According to the filing, Kwon sought the assistance of a U.S. trading and investment firm to manipulate the market price of UST, which the firm reportedly provided. This allegation was also made by the SEC in its complaint.

According to Filip Adzic, the interior minister of Montenegro, Kwon was arrested with falsified documents at an airport earlier on Thursday. The Korean National Police Agency later confirmed his identity.

Kwon’s arrest represents a significant milestone in the ongoing investigation, as he has been the subject of multiple inquiries and was even the subject of an Interpol red notice. 

The collapse of the TerraUSD (UST) stablecoin and its $40 billion ecosystem last year sent shockwaves through the crypto markets, and Kwon was implicated in the incident.

The news of Kwon’s arrest was announced on Twitter by Filip Adzic, the minister of interior of Montenegro. Adzic’s account is followed by the official account of the prime minister of Montenegro, Dritan Abazovic, who retweeted the announcement. However, the account Adzic is unverified, and official confirmation of Kwon’s identity is still awaited.

Kwon’s extradition is being demanded by South Korea, the USA, and Singapore, and the Department of Justice has confirmed its intention to seek his extradition to the U.S.

This arrest represents a significant step forward in the investigation into the collapse of terraUSD and its associated ecosystem. The impact of this development on the broader cryptocurrency market is yet to be determined, but it is expected to attract close scrutiny from investors and regulators.

Related Reading | Coinbase CEO’s Stock Sell-Off Amidst Wells Notice Raise Eyebrows 

Terra Founder Slapped With Lawsuit Over $40B Loss

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Continuing its whip on troubled crypto firms, SEC charged Terra founder Do Kwon for alleged fraud to the tune of $40 million to its investors.

In a complaint filed in the Southern District of New York, the agency’s chair Gary Gensler alleged that the Singapore-based Terraform Labs and its boss Do-hyung 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.”

“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors,” it added.

Often regarded as crypto’s most volatile event, on May 12, 2022, stablecoin UST and crypto asset LUNA of the Terra Ecosystem collapsed in a matter of days, wiping out the savings of countless people.

The excess supply of LUNA and the rapid depegging of UST made investors lose confidence. As a result, the prices of both assets spiral and got delisted from leading exchanges.

According to SEC’s allegations, Kwon and his firm Terraform hatched a plan to lure investors and raised billions of dollars from Apr. 2018 to May 2022.

An “interconnected suite” of crypto asset securities, such as securities-based swaps that mimicked U.S. stocks and most notably, the so-called “algorithmic stablecoin” TerraUSD, are offered and sold as a means of raising money from investors.

The firm showcased stablecoin UST as a “yield-bearing” coin, that promised to pay interest of up to 20 percent, SEC stated in its complaint.

Terra Founder Remained Defiant

In the lawsuit submitted to the federal court for the Southern District of New York in Manhattan, Kwon and Terraform was accused of breaking the Securities and Exchange Act’s registration and anti-fraud provisions.

SEC enforcement director Gurbir Grewal said in the press statement.

Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shock waves through the crypto markets but once again highlights that we look to the economic realities of an offering, not the labels put on it.

Kwon faced tremendous legal and social pressure for his role in the Terra crash.[6][7] Citizens from various jurisdictions — including South Korea, Singapore, and the United States are taking legal action against him, including an Interpol arrest warrant.

Since then, the beleaguered founder has remained evasive about his whereabouts. With regard to the latest lawsuit, Kwon has not made any comments, at the time of writing this article.

Here’s Why Binance Will Suspend Terra Classic Transactions

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The largest cryptocurrency exchange in the world, Binance, had been in the news after briefly stopping withdrawals of the stablecoin USD Coin (USDC) in December 2022. Customers were withdrawing money from the exchange at a significant rate as worries about the exchange developed. The mounting worries reflected a loss of confidence in centralized exchanges as a result of numerous industry scandals in 2022.

However, Binance makes headlines yet again on similar lines, but on a lighter note. Top cryptocurrency exchange Binance has informed that on January 14 at 3:50 a.m. UTC, it would temporarily halt deposits and withdrawals for LUNC, USTC, and ANC via the Terra Classic (LUNC) network. This is as a result of the Terra Classic (LUNC) network upgrade caused by the most recent community suggestion.

It is planned for the Terra Classic (LUNC) network update to start at epoch 15,029, or about Jan. 14, 4:50 a.m. UTC, and last for roughly three hours. While temporary suspensions of deposits and withdrawals will apply, trading in LUNC, USTC, and ANC will not be impacted by the network update. The Terra Classic (LUNC) network’s withdrawal fees for LUNC, USTC, and ANC will be reviewed and, if necessary, adjusted by Binance, according to the company’s website. Once the improved network is judged reliable, deposits and withdrawals for the Terra Classic (LUNC) network will once again be accepted, however, users may not receive any more notice of this.

Binance Reduces LUNC Burns

By effectively banning LUNC reminting from burns, the proposal at the core of the Terra Classic network update attempts to deprecate the seigniorage reward policy. It also seeks to raise gas prices by five times (5x) to capitalization the community pool and increase validator or staking incentives. The proposal claims that over the past four weeks, LUNC’s on-chain burn rate has drastically lowered and will continue to do so as Binance cuts back on burns.

Binance Terra Classic LUNC

According to reports, Binance declared that it will begin to burn 50% of the LUNC spot and margin trading fees instead of 100% in response to recent developments where the LUNC burn is being reminted as a development fund. The LUNC community suggests a five-fold increase in gas taxes in light of the decrease in burn rate. “In terms of market value, Terra Classic’s gas prices are 18.42 times less expensive than Terra 2.0’s. Terra Classic gas prices will still be 3.68 times less expensive than Terra 2.0 even with a 5x increase “which supports the argument for raising the gas tax.

3AC’s Zhu Su Blames FTX & DCG For Terra’s Fiasco

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Zhu Su, CEO of the defunct hedge fund Three Arrow Capital or 3AC, has taken to Twitter to pin blame on venture capital firm Digital Currency Group [DCG] and FTX for Terra’s fallout.

In the series of tweets, the co-founder of the Singapore-based firm alleged that DCG and FTX hatched an elaborate plan to attack Terra’s native token LUNA, and Lido’s stETH.

It is worthwhile to mention that Three Arrows was the first major crypto firm to go bankrupt in 2022, brought down by the collapse of cryptocurrencies Luna and TerraUSD in May. It filed for bankruptcy in the British Virgin Islands in late June 2022.

According to Zhu Su, DCG and FTX suffered severe losses during that time. With the collapse of Babel and other crypto firms involved in Grayscale’s GBTC, the losses went beyond 3AC.

For those new, DCG is the parent firm of Grayscale Investments and Genesis Trading. FTX’s recent crash triggered a major liquidity crisis for DCG’s crypto lending subsidiary Genesis Global.

According to the CEO, DCG could have supported the hapless firms in the restructuring process but instead chose to “fabricate a left pocket right pocket callable promissory note that magically filled the hole.”

“This is like a kid losing at poker and saying “I am fine, my dad will pay you, let me keep playing”, he tweeted.

“DCG’s Value Is Criminal Fraud”- 3AC Founder

Zhu Su also alleged that DCG and FTX had been attacking them for months and had taken advantage of 3AC’s fall to “misdirect” the crypto community.

They, like FTX, proceeded to misdirect for months, using various methods to attack us and also not have anyone ask the hard questions which is how did genesis fill the hole. they, like FTX, spent six months taking more deposits while insolvent and hoping mkt goes up.

The 3AC founder then likened DCG’s efforts to criminal fraud and criticized its CEO, Barry Silbert, for approving SBF his FTT-backed loan.

Further, the founder predicted that Genesis would likely be the next to file bankruptcy in the near future. “…they are likely demanding Barry pays back his cashouts the easy way instead of waiting for a DoJ criminal case with restitution punishments,” he stated.

“The damage from yield generator fund blow-ups could have been contained by client-facing firms doing proper restructurings that, while painful for equity holders, would’ve ensured continuity Instead, FTX and DCG committed umpteen frauds to risk client funds rather than dilute”, the 3AC founder concluded.

Terra’s Do Kwon Escapes To Serbia Via Dubai

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Terra’s co-founder Do Kwon is reportedly in Serbia, and South Korean authorities are seeking assistance from the Serbian government in the investigation.

“Recently, we obtained intelligence that CEO Kwon was in Serbia, and it was found to be true,” an official from the investigation stated.

31 years old Kwon Do-hyeong who headed Terraform Labs was the face behind the “Luna crisis” where investors lost over 50 trillion won due to the price collapse of the two sister tokens Luna and Terra in May.

Terraform Labs is the firm that issued both stablecoin Terra [UST] and crypto asset LUNA.

The Seoul Southern District Prosecutor’s Office’s Financial and Securities Criminal Unit obtained an arrest warrant for Kwon on charges of providing false information to investors in September, and Interpol also issued a ‘red wanted’, the highest level of wanted arrest and repatriation.

But just before the incident, Kwon quietly flew to Singapore in April and arrived in Dubai, United Arab Emirates before finally landing in Serbia. 

It is still unclear why CEO Kwon went to Serbia. But prosecutors believe he is fleeing abroad to avoid investigation and is trying to find out if there is any third party involved.

The Terra founder made a long-awaited appearance in an exclusive interview on October 18 with renowned author and crypto journalist Laura Shin, TronWeekly reported.

Shin, the host of the Unchained podcasts, posed some challenging questions to the evasive founder.

The first of which was about the Red Notice that Interpol had issued calling for his arrest. Kwon replied he did not receive any copy of the arrest warrant and was awaiting confirmation.

He expressed his dissatisfaction with the Financial Services Commission of South Korea, for “creating new regulations through criminal enforcement proceedings.”

Calling the charges “illegitimate and politically motivated,” Do Kwon said he is complying with all the document requests made by the South Korean prosecutors.

Recently, the embattled CEO took aim at former FTX CEO Sam Bankman-Fried blaming the latter for the Terra-LUNA crisis.

Terra Founder Accuses SBF of Putting Significant Wager On Luna’s Price

He alleged that either SBF or Alameda received $1 billion in TerraUSD stablecoins from Genesis Trading prior to the UST depeg.

According to Kwon, Sam Bankman-cryptocurrency Fried’s trading business Alameda placed a sizeable bet that the value of LUNA would fall.

Terra Do Kwon Tweets About How Genesis and SBF Triggered the Fall of Terra Ecosystem

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Do Kwon, a co-founder of Terra blames Genesis and former FTX CEO Sam Bankman-Fried for the Terra-LUNA crisis. He is convinced that Sam Bankman-Fried or Alameda received $1 billion in TerraUSD (UST) stablecoins from Genesis Trading prior to the UST depeg.

A market manipulation investigation into whether FTX and Alameda Research contributed to the Terra-LUNA crisis has been launched by federal prosecutors looking into the FTX crisis and its connection to Alameda Research.

Do Kwon wants everyone to come clean

Do Kwon, the founder of Terra, revealed how Genesis Trading, Sam Bankman-FTX, Fried’s, and the hedge fund Alameda contributed to the demise of TerraUSD (UST) stablecoin and Terra in a series of tweets on December 8. (LUNA).

Do Kwon claims that before the USD depeg, Genesis Trading acquired billions in UST from Luna Foundation Guard (LFG) and moved it to FTX or Alameda. SBF took advantage of the funds to manipulate prices in favor of companies like FTX and Alameda Research.

Do Kwon also questioned why, during the UST depeg, Alameda borrowed more than $1 billion in Bitcoin from Voyager. Additionally, Alameda requested an additional $10 billion in Bitcoin from other significant businesses. He wants SBF to make public the details of these significant transactions.

He thinks Alameda, a cryptocurrency trading company run by Sam Bankman-Fried, made a significant wager that the price of LUNA would decline.

Additionally, he discloses that Alameda was responsible for the “significant currency contraction that UST underwent in February 2021.” In order to deplete the Curve liquidity pools during the Magic Internet Money (MIM) crisis, Alameda sold 500 million in UST in a matter of minutes.

The New York Times reported on Wednesday that U.S. federal prosecutors are looking into whether Sam Bankman-Fried, the founder of FTX, manipulated the market for two cryptocurrencies in May, causing their demise and the demise of his own cryptocurrency exchange.

According to the report, the prosecutors are investigating whether Bankman-Fried manipulated the prices of two interconnected currencies, TerraUsd and Luna, to the advantage of the companies he controlled, including FTX and Alameda Research.

The investigation is still in its early stages, the newspaper reported, adding that it is unclear whether or when prosecutors started looking into the TerraUSD and Luna trades, or whether they have found evidence of Bankman-Fried’s wrongdoing.

Court Drops Terra Luna Co-Founder Hyun-Seong’s Warrant

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For some time now, Terraform Labs has been making headlines. According to sources, South Korean authorities summoned the company’s co-founder Daniel Shin, also known as Shin Hyun-Seong, earlier this month for an inquiry into claims that he improperly benefitted from the sale of LUNA [now LUNC] tokens.

According to a South Korean news source, the prosecution wanted to arrest Shin. According to sources, the prosecution has charged Shin with making illegal profits while secretly selling $105 million of LUNA at a market high. He was also charged with violating the Electronic Financial Transaction Act by using customer data from Chai, another company he managed, to promote Luna.

However, Shin had previously stated that in 2020 he terminated ties with Do Kwon and Terraform Labs. He later founded the payment technology company Chai Corporation, where he is currently CEO and founder.

Change Of Events For Terra-Luna Co-Founder

It has just come to light that the court on March 3rd dismissed the arrest order for Shin Hyun-Seong, the former CEO of Chai Corporation and the founder of Terraform Labs, the company responsible for creating the virtual currency known as “Terra Luna.”

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Terra Luna Co-Founders: Daniel Shin (left) and Do Kwon (right)

In the stablecoins meltdown, which shook the world virtual currency market in May of this year, Shin is seen as a crucial player. Even trying to find a replacement hire for former CEO Shin has failed, and with Terraform Labs co-founder Kwon Do-Hyung staying abroad and not coming back to Korea, it can be assumed that the probe will be difficult.

After questioning the suspects (warrant review) and arresting them the previous day, chief judge Hong Jin-Pyo of the Seoul Southern District Court dismissed the arrest warrant at roughly 2:20 am on the same day.

Judge Hong said,

“Considering the attitude toward the investigation, the circumstances, process, and contents of the statement, it is difficult to see that there is a risk of destroying evidence or escaping beyond the scope of exercising the right to legitimate defense.”

Warrants for three early backers and four Terra Luna developers, who were also jointly sought, were all denied for the same reason.

Terraform Labs’ Co-founder to be prosecuted by S.Korea

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Terraform Labs has been in the news for a while now. Earlier this month, according to reports, South Korean authorities had summoned Daniel Shin, a co-founder of Terraform Labs, to appear at an investigation this week about allegations that he unfairly profited from the sale of LUNA [now LUNC] tokens.

Yonhap, a South Korean news agency, is now reporting that Shin’s arrest is being sought by the prosecution. According to reports, Shin is accused by the prosecution of obtaining illicit profits while selling $105 million of LUNA at a market high without telling investors. He’s also accused of breaking the Electronic Financial Transaction Act by utilizing client information from Chai, a different business he oversaw, to advertise Luna.

Previously, on the 15th, the prosecution requested a collection preservation freeze before the conviction was confirmed to stop the sale of the property suspected of having been acquired through criminal activity prior to prosecution for the new representative property, which was quoted by the court and is worth about 140 billion won.

Additionally, CEO Shin is charged with harming the business by pushing Luna and the stablecoin Terra while exploiting customer data and monies held by Chai Corporation.

The Personal Information Protection Act and other pertinent rules are followed in the secure management of customers’ personal information, according to a notice on the homepage of Chai Corporation.

Shin Refutes Ties With Terraform Labs

Shin has repeatedly said that he severed connections with Do Kwon and Terraform Labs in 2020. He then went on to found Chai Corporation, a provider of payment technology, where he is presently CEO and founder.

According to the most recent source, authorities have now charged the former Terra official with “breach of duty, as Chai Corporation’s customer information and finances were allegedly used to promote Terra’s stablecoin and Luna cryptocurrency.”

He will also be questioned about if he knew about insider trading and price manipulation that Terraform Labs allegedly carried out to raise the price of LUNA.

Do Kwon also has a warrant out for his arrest, however it is still unknown where he is. Exiting the country has been prohibited for key Terraform Labs personnel and former workers.

Here’s Why Terra Classic Burns Don’t Affect Token Growth

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The breakdown of the Terra ecosystem was undoubtedly one of the factors that caused the bitcoin market to implode. The algorithmic stablecoin created by Terraform Labs lost its peg with the U.S. dollar in May 2022, causing the old LUNA and UST tokens—now known as LUNC and USTC—to experience a steep decline.

Terra left behind more than just a few losers in the cryptocurrency market. The massive crash delivered trillions of units of cryptocurrency to the market in addition to producing a new token and transforming the old one into Terra Classic.

More and more LUNC tokens were produced to keep the Terra Classic peg, which caused the price of the altcoin to drop from $68 on May 7 to just $0.0001 on May 13.

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Source

Additionally, Terra Classic’s supply was at an all-time low of 346 million tokens on April 7, 2022. The total number of circulating tokens for the alternative currency rose to 6.9 trillion after the May catastrophe.

Has Terra Classic Family Of Devalued Tokens?

LUNC has joined the family of devalued tokens as a result of a falling price and an excessive supply. People continue to have faith in an altcoin’s recovery, nevertheless, because of their drive for money and the investors who keep placing bets on inexpensive tokens in the hopes of becoming wealthy.

Is it possible that LUNC would soar once more and turn investors become millionaires in a market that emphasizes assets like Shiba Inu? Some people believe that burning tokens is a positive response to this question.

Burning a token involves permanently removing it from circulation and reducing its supply. Burning tokens primarily aims to create scarcity, which can lead to asset appreciation.

The burn may exert additional pressure on the price of a token to rise if demand for that asset rises. The most competitive market, however, demonstrates that this is not a differentiator for a higher capitalization on its own.

Of course, it is important to take into account the new wealth factor in a positive market, which is always the case. The introduction of a low-cost new token might help Terra Classic maintain its position outside of the spotlight and the burns continue to have little impact on the altcoin’s price. News on Terra

Terra’s Co-Founder Reportedly Sold 70% LUNA Before Price Hike

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Earlier this week, it was revealed that South Korean authorities had summoned former Terra executive Shin Hyun-seong, aka Daniel Shin, to an investigation into allegations that he had unfairly profited by selling LUNA [now LUNC] tokens.

Shin was accused of “holding pre-issued LUNA tokens without informing regular investors and then reportedly generating gains of 140 billion Korean won when he sold the tokens at a high point,” as a result. The same was worth approximately $105.52 million.

Terra Co-Founder Denies Illegitimate Profits Of $100M

Shin testified in front of the prosecution on November 17 that he was in possession of a sizable number of LUNA tokens at the time of the accident. Additionally, he denied selling tokens when LUNA was near its highs. A local media report claims,

“Shin is said to have made a statement to the prosecution to the effect that “more than 70% of the disposed Luna was traded before the price soared, and a significant amount was retained even at the time of the collapse.”

In a recent decision, the prosecution determined that the LUNA cryptocurrency qualifies as a financial investment security. As a result, it is “actively investigating” charging Shin with crimes under the Capital Markets Act, namely engaging in fraudulent illegal activities.

The former Terra executive is also charged with harming the business by promoting LUNA and the native stablecoin of the Terra ecosystem while using customer data and funds held by Chai Corporation, the organization where he currently holds the positions of CEO and Founder.

Nevertheless, a Chai representative recently informed Watcher Guru through email that the organisation has been running independently from Terra since Q1 2020. Shin has “cooperated” with the authorities in the continuing Terra probe and will “continue to do so,” according to the issued statement.

Shin has repeatedly said that he severed connections with Do Kwon and Terraform Labs in 2020. He then went on to found Chai Corporation, a provider of payment technology, where he is presently CEO and founder.