The US Securities and Exchange Commission has charged crypto developer Do Kwon and his company Terraform Labs with defrauding investors in what the regulator described as a multibillion-dollar scheme, according to a federal court filing.
Kwon, the founder of the blockchain platform Terraform Labs, was the primary developer of two cryptocurrencies whose collapse disrupted crypto markets worldwide last year.
Starting in April 2018, he raised billions of dollars from investors by selling a series of interconnected digital assets, many of which were unregistered securities, the SEC alleged in the court filing in the Southern District of New York.
The SEC filing did not specify Kwon’s current location. In September, a South Korean court issued an arrest warrant, suggesting that Kwon was living in Singapore.
However, the Singapore Police Force stated he was not presently in the city-state. Kwon could not immediately be reached for comment.
TerraUSD, an algorithmic stablecoin intended to maintain a 1:1 peg to the US dollar, derived its value through another paired token called Luna.
Both tokens lost nearly all their value when TerraUSD, also known as UST, fell below its 1:1 dollar peg in May 2022. Before its collapse on May 9, TerraUSD had a market cap exceeding $18.5 billion and was the tenth-largest cryptocurrency.
According to the SEC’s complaint, Terraform Labs and Kwon misled investors regarding the stability of UST and claimed that the firm’s crypto tokens would appreciate in value.
“This case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws, but it also demonstrates the strength and commitment of the SEC’s dedicated public servants,” SEC Chair Gary Gensler stated.
Globally, investors in TerraUSD and Luna lost an estimated $42 billion, according to blockchain analytics firm Elliptic.
The market turmoil following the collapse of TerraUSD led to the failure of several major crypto companies, including US crypto lender Celsius Network and Singapore-based crypto fund manager Three Arrows Capital.
