A complaint filed by the United States Securities and Exchange Commission says that Terra co-founder Do Kwon and Terraform Labs laundered more than $100 million worth of Bitcoin from the platform following its May 2022 collapse.
According to the SEC lawsuit, filed Feb. 16 in the U.S. District Court for the Southern District of New York, Kwon and Terraform cold-walled more than 10,000 bitcoin (BTC) from the platform and Luna Foundation Guard and then transfers a Swiss bank account into a cold wallet to convert it into fiat. The financial regulator said the Terra co-founder and his company may have access to more than $100 million in cash since withdrawals began in June 2022.
The SEC said that Kwon and Terra not only identified the bitcoin stash, but also artificially restored TerraUSD (UST)’s dollar peg — the stablecoin had been one of the largest by market cap at the time of the platform’s collapse. According to the complaint, when the platform fell below $1 in May 2021, the platform asked a third party to “buy massive amounts of UST to restore the $1.00 peg,” misleading investors as to its stability and reliability:
“The price of UST falling below its $1.00 mark and not being quickly recovered by the algorithm would cause the entire terraform ecosystem to fail as UST and LUNA had no asset reserves or other reserves.”
The SEC also claimed that several of the tokens involved in Terra’s collapse were “crypto-asset securities” that fall under its remit of regulation. According to the SEC, those tokens included UST, LUNA, and Wrapped LUNA, as well as MIR tokens and mAssets developed under Terra’s Mirror protocol.
“Defendants solicited investors in these crypto assets by touting their profit potential,” the SEC said. “Defendants repeatedly stated that the crypto assets would increase in value due to Terraform’s development, maintenance, and promotion of their blockchain, protocols, and overall Terraform ecosystem.”
Terra’s business connections were also a target of the financial regulator, as the SEC reported that Chai — a South Korean payments app then affiliated with Terra — “did not process or settle any transactions on the Terraform blockchain.” Rather, Terra allegedly reported on transactions “that had already taken place in the real world using Korean won,” while publicly claiming that Chai conducted transactions on the blockchain.
“In at least five instances between October 2021 and March 2022, there was one or more days when no transactions were confirmed on the Terraform blockchain,” the SEC said. “However, there is no evidence that the chai payment application did not work during these periods.”
Related: “Wild” – SEC Tracks Terra, Triggering Responses From Crypto Lawyers
Kwon remained active on his Twitter account following Terra’s collapse, although many crypto users blamed him for their loss of funds and the apparent “surge event” that led to multiple bankruptcies during the 2022 crypto crash. South Korean authorities reportedly sent two officials to Serbia to track down Terra’s co-founder. At the time of publication, Kwon’s whereabouts were unknown.