• Do Kwon possibly mainly responsible for Terra-Crash
• Investigations in South Korea into alleged financial fraud
• The SEC also accuses Do Kwon of breaking the law
For years, Do Kwon reacted to criticism of his Terra project with scorn and derision. But the most dramatic forecasts of the skeptics have come true: the multi-billion dollar LUNA tokens and the stablecoin UST have collapsed, thousands of small investors are facing financial ruin. Now Do Kwon will no longer only be able to react to criticism via Twitter – but will probably have to defend himself in court against sharp allegations in both South Korea and the USA.
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Do Kwon – the brains behind the failed algorithmic stablecoin UST
At least since the Terra crash, which began on May 9, 2022, Do Kwon should be known to most crypto investors. In just one week, the algorithmic stablecoin Terra UST and the associated cryptocurrency Terra LUNA burned approximately 45 billion US dollars in capital. Through a complex algorithmic system of “burning” (burning) and “minting” (minting) between the UST and LUNA tokens, the stablecoin UST should maintain parity with the US dollar. A plan that collapsed phenomenally in May. UST and LUNA were in a day-long negative spiral that ended in worthlessness. The reason why the stablecoin Terra was suddenly no longer able to maintain its previous equivalence to the dollar has not (yet) been identified.
Because of the Terra debacle: Do Kwon is being investigated in South Korea
But there are many rumors circulating about the Terra crash. Many investors believe it is likely that a scam by Terraform Labs was behind the crash. As early as March 2022, almost two months before the scandal, “Bloomberg” described Terra as a “gigantic one Ponzi scheme“. It was only a matter of time before the house of cards collapsed. But what exactly then caused the UST to crash within a few hours is not known. In South Korea, the home of Do Kwon and most of the LUNA investors, Do Kwon and the company’s other co-founder, Shin Hyun-sung, are being investigated for possible financial fraud.
As “BTC-ECHO” reports, the South Korean regulatory authorities have convened several emergency conferences in the past few weeks. An analysis of the reasons for the Terra crash is also on the agenda, as is tightening the regulation of crypto exchanges and companies. Crypto connoisseur and Ethereum co-founder Vitalik Buterin called for compensation from Terra retail investors. It is simply fraud when an “influencer” (meaning Do Kwon) makes investors believe that they will receive “20 percent interest on the US dollar” in the long term with the help of the Terra project.
Did Do Kwon raise capital before the Terra crash?
Block Builders writes that South Korean TV broadcaster JTBC found out that Do Kwon initiated a monthly transfer of $80 million worth of crypto assets to unknown wallets. Do Kwon has not yet commented on the allegations of money laundering and self-enrichment. In view of these far-reaching allegations, however, it is not surprising that Do Kwon’s relaunch of the Terra cyber device called LUNA 2.0 failed spectacularly.
Do Kwon caught the eye of US law enforcement even before the Terra debacle
However, Do Kwon not only has to face law enforcement in his home country of South Korea, but also in the United States. The US Securities and Exchange Commission (SEC) accuses the tech founder of having sold tokens on the DeFi platform Mirror Protocol, which should actually be considered securities. Mirror Protocol enabled a kind of derivatives trading on tech stocks and was closely linked to the two Terra digital currencies. In order to build up positions with Mirror, collateral had to be deposited in UST or the linked coin LUNA.
The Problem: Do Kwon profitably sold Mirror Protocol tokens in what the SEC alleges constitutes an illegal insider sale of securities. For similar reasons, the SEC is also investigating Ripple and Binance. According to “BTC-ECHO” information, the SEC had already subpoenaed Do Kwon in 2021 due to numerous legal inquiries regarding the Mirror Protocol. However, Do Kwon did not comply with this request and subsequently sued against it, but without success. The New York Court of Appeals recently confirmed that the lawsuit against Do Kwon still stands. Mirror Protocol itself has been without liquidity since the LUNA crash and has recently had to admit to significant security gaps. In view of these serious difficulties, a turnaround for the Miror Protocol, like the Terra project, is extremely unlikely.
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