Following the long legal battle around the collapse of the Terraform Labs project, a U.S. District Judge has granted the U.S. Securities and Exchange Commission (SEC) the authority to collaborate with international authorities in its pursuit of a key figure linked to Terraform Labs.
The move comes as the SEC intensifies its efforts to investigate alleged misconduct within the cryptocurrency space.
Terraform Labs was co-founded by Do Kwon and Daniel Shin and gained attention for its innovative approach to stablecoins. The project’s native tokens, LUNA/UST, was designed to maintain price stability by algorithmically adjusting its supply based on market demand.
Terraform Labs, led by Mr. Kwon, secured over $200 million in funding from prominent investment firms like Lightspeed Venture Partners and Galaxy Digital to finance cryptocurrency projects developed using their currency.
Despite doubts surrounding its technological foundation, the company achieved remarkable success. The total valuation of LUNA surged past $40 billion, sparking huge interest in the crypto market.
The collapse
Starting on May 7th, the stability of terraUSD (UST), the algorithmic stablecoin with a targeted $1 peg and an $18 billion market cap, encountered significant turbulence, leading to a dramatic downturn.
By May 9th, the token had fallen to 35 cents, and it has struggled to regain its footing ever since.
Furthermore, the accompanying token LUNA, which was designed to stabilize the value of UST and vice versa, suffered a similar fate.
LUNA, initially priced at $80, plummeted to just a few cents by May 12th. As a result, the entire project collapsed, resulting in substantial losses within the crypto market, totaling billions of dollars.
Since May 2022, ongoing investigations and legal proceedings are underway to determine the consequences for the individuals involved in the company’s operations.
In June 2023, Do Kwon, who had evaded authorities, was apprehended in Montenegro. Kwon’s legal issues have been escalating; earlier in the same month, he received a four-month prison sentence in Montenegro due to his possession of a counterfeit Costa Rican passport.
Notwithstanding his arrest, the United States and South Korea, continue their investigations into the company.
Furthermore, in the US, the court records reveal that District Judge Jed S. Rakoff has greenlit the SEC’s request to seek assistance from South Korean authorities in order to obtain testimony from Daniel Shin, one of the co-founders of Terraform Labs alongside Do Kwon.
According to the SEC, its accusations revolve around what they claim to be misleading practices orchestrated by Terraform Labs and Kwon.
Investors were allegedly provided with false information, as they were informed that transactions settled on the Terra blockchain would contribute to the value of Terra’s native token, LUNA.
In a separate allegation back in February, the SEC accused Kwon of transferring a substantial amount of Bitcoin (BTC), valued at $250 million at the time, from Terraform Labs and the Luna Foundation Guard (LFG) to a Swiss bank account.
This move reportedly took place as both LUNA and its algorithmic stablecoin, TerraUSD UST, were facing considerable instability.
Also, Swiss authorities have reportedly frozen assets worth $26 million linked with Do Kwon and Terraform Labs. According to sources at the Korean outlet Digital Asset, this action was taken in response to formal requests from both the New York Attorney’s Office and the SEC.
Although the company now has a new leadership, Chris Amani, as CEO, its website was recently breached by hackers.
According to Terra, the attackers are specifically targeting visitors of the site by luring them into linking their online or hardware wallets.
As a precautionary measure, Terra has advised all users to avoid interacting with any websites on the platform until the team provides further confirmation that full access has been restored.
