TerraUSD Stablecoin Scandal: SEC Sues Terraform Labs and Do Kwon for Deceiving Investors – Here’s What Happened

The US Securities and Exchange Commission (SEC) has sued Terra founder Do Kwon and his organization Terraform Labs for securities fraud.

“[The SEC] today charged Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon with orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities,” the SEC wrote in a press release published on Thursday.

The statement from the regulator noted that Do Kwon’s “scheme” between April 2018 and May 2022 “raised billions of dollars” by selling cryptoassets to investors, often involving “unregistered transactions.”

The SEC also alleged that Kwon and Terraform Labs had promoted their cryptoassets by repeatedly claiming that the tokens would increase in value. It added that investors were “misled and deceived” on at least one matter involving a Korean mobile payment that was said to be using the Terra blockchain.

Lastly, the SEC said Kwon and Terraform Labs misled investors about the stability of the infamous algorithmic stablecoin TerraUSD (UST).

Terraform Labs is the parent company of the failed stablecoin UST and cryptocurrency Luna. The UST stablecoin was meant to have a constant $1 value via a mix of algorithms and trader incentives involving a sister token, Luna.

UST lost its US dollar peg in May of last year and never recovered despite several rescue attempts from Do Kwon.

Community reacts

The news of the lawsuit also reached the crypto community on Twitter, where several community members questioned the SEC’s actions.

Among those who commented was the popular crypto trader and economist Alex Krüger, who wondered why the SEC didn’t act sooner:

Hi @SECGov why did you not do something BEFORE people lost all their money?

— Alex Krüger (@krugermacro) February 16, 2023

Others also offered their takes, with some users asking how the SEC expects enforcement to work when Do Kwon and his organization are not based in the US but instead in Asia:

How you going to enforce this one guys? A South Korean national and a Singapore based entity. Good luck 🫡 $LUNA $UST pic.twitter.com/iZt5c37upt

— RyanLion 🌒 (@TheRyanLion) February 16, 2023

Do Kwon’s unclear whereabouts

As previously reported by Cryptonews.com, Do Kwon is believed to be in Serbia, but South Korean authorities have so far been unable to find him.

Earlier this year, a group of South Korean officials traveled to Serbia in a bid to locate the Terra founder, but the search has – at least so far – not yielded any results. An arrest warrant has been issued for Kwon, and a number of other Terraform executives, and Interpol has issued a Red Notice, calling upon police officers across the world to arrest him.

Experts in international extraditions have in the past said that Do Kwon is likely to be hiding in Serbia given that the country has never signed an extradition treaty with South Korea. Without this, experts say South Korean prosecutors may be in a tight spot.

It is unclear how a potential arrest order from the US would be received in Serbia, should Do Kwon be confirmed to be there.