Do Kwon the CEO of the Terraform Labs and founder of LUNA and LUNA Classic has been charged by the Securities and Exchange Commission with crypto asset securities fraud which runs into multibillion of dollar.
In May 2022, the TerraUSD (UST), and its sister coin LUNA collapse and many investor lost their money which runs into billions of dollars. Kwon and Terraform lab offered the investors sale of an “inter-connected suite” of crypto asset securities, including securities-based swaps that mirrored U.S. equities, and most famously, the so-called “algorithmic stable coin” TerraUSD. UST was portrayed as a “yield-bearing” coin, by the company and offered to pay interest of up to 20 percent.
1 UST was pegged a 1-to-1 ratio with the dollars as a stable coins which allowed the sister coins LUNA to be exchanged with UST at 1$ no matter the market price of either token at the time of exchange. Also, minting 1 UST required the burning or destroying of 1 LUNA coins. This structure allowed for arbitrage opportunities that were key to maintaining the peg of 1-to-1 ratio of UST to Dollars and this was successfully implemented since Apr. 2018 until its collapse.
The collapse was a result of the growing value of the LUNA coins price, which was also not stable as compared to the UST. Thus forcing UST to break its $1 peg which sent both UST and LUNA tumbling down in price and value.
After this event, Do Kwon in an effort to redeem his crashing coins decided to lunch a version 2.0 of the LUNA coins and called it LUNA and the old Luna was then renamed LUNA Classic (LUNAC). Also Kwon conspired with an unnamed third party who purchased massive amounts of UST to restore the “algorithmic” peg, which he and Terraform claimed it as a victory for the algorithm, but this did not go well with investors who had invested billions into kwon project.
Do Kwon and Terraform lab was then charged to a federal court in Southern District of New York in Manhattan, and charges both with violating the registration and anti-fraud provisions of both the Securities and Exchange Acts.
In the court hearing, SEC alleges that Kwon marketed those assets, including those mAsset swaps and Terra, as profit-bearing securities, “repeatedly claiming” the tokens would increase in value. In a statement by SEC enforcement director Gurbir Grewal, he stated that “Today’s action not only holds the defendants accountable for their roles in Terra’s collapse, which devastated both retail and institutional investors and sent shock waves through the crypto markets, but once again highlights that we look to the economic realities of an offering, not the labels put on it,”
In spite of this charges against Kwon, his current whereabouts is unknown and he is also wanted by the n South Korea for his involvement in the collapse of TerraUSD.