Do Kwon removed 10K Bitcoin from Terra after collapse – takeaways from SEC complaint
A complaint filed by the United States Securities and Exchange Commission said Terra co-founder Do Kwon and Terraform Labs laundered more than $100 million worth of Bitcoin from the platform after its May 2022 collapse.
According to the SEC complaint filed in the US District Court for the Southern District of New York on February 16, Kwon and Terraform transferred more than 10,000 Bitcoin (BTC) from the platform and Luna Foundation Guard to a cold wallet, then to a Swiss bank account to convert to fiat. Finanstilsynet said the Terra co-founder and his company could have access to more than $100 million in cash since withdrawals began in June 2022.
In addition to identifying the holdings of Bitcoin, the SEC said Kwon and Terra artificially restored TerraUSD’s dollar peg — the stablecoin had been one of the largest by market capitalization at the time the platform collapsed. According to the complaint, the platform encouraged a third party to buy “massive amounts of UST to restore the $1.00 peg” when it fell below $1 in May 2021, misleading investors about stability and reliability:
“UST’s price falling below the $1.00 ‘stick’ and not quickly being restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no reserve of assets or other support.”
The SEC also claimed that several of the tokens involved in the collapse of Terra were “crypto-asset securities” that fall under its regulatory purview. According to the SEC, these tokens included UST, Terra (LUNA), wrapped LUNA, as well as MIR tokens and mAssets developed under Terra’s Mirror Protocol.
“Defendants solicited investors in these cryptoassets by touting their profit potential,” the SEC said. “Defendants repeatedly stated that cryptoassets would increase in value based on Terraform’s development, maintenance and promotion of the blockchain, protocols and the entire Terraform ecosystem.”
Terra’s business dealings were also a target of the financial regulator, as the SEC reported Chai — a South Korean payment app linked to Terra at the time — “did not process or settle transactions on the Terraform blockchain.” Rather, Terra allegedly reported transactions “that had already occurred in the real world using Korean won,” while claiming to the public that Chai was trading on the blockchain.
“In at least five instances between October 2021 and March 2022, there was one or more days when no transactions whatsoever 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 going after Terra sparks response from crypto lawyers
Kwon has remained active on his Twitter account following the collapse of Terra despite many crypto users blaming him for the loss of funds and the apparent “ripple event” that led to multiple bankruptcies amid the 2022 crypto crash. South Korean authorities reportedly sent two officials to Serbia in an attempt to track down the Terra co-founder. At the time of publication, Kwon’s location was unknown.
