Former cryptocurrency kingpin Do Kwon has been charged with orchestrating a multibillion-dollar crypto asset securities fraud by the US Securities and Exchange Commission (SEC).
South Korean native Kwon spearheaded Terraform Labs, the Singapore-based developer of failed stablecoin Terra USD and sister coin LUNA, both of which saw a stunning US$40bn collapse in May 2022.
Terraform Labs’ implosion helped to set off a two-trillion-dollar rout in the cryptocurrency markets, precipitating the decline of Celsius Network, FTX and many others in the year that followed.
SEC chair Gary Gensler alleges that Kwon and Terraform Labs failed to provide potential investors with “full, fair, and truthful disclosure as required for a host of crypto asset securities”.
“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors," said Gensler.
Gurbir S Grewal, director of the SEC’s division of enforcement, said the defendants’ role in Terraform Labs’ collapse “devastated both retail and institutional investors and sent shock waves through the crypto markets”.
The complaint, filed in the US District Court for the Southern District of New York, charges the defendants with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.
Terraform Labs’ cryptocrash
Before their collapse, Terra LUNA and the Terra USD (UST) stablecoin were two of the largest altcoins on the market.
UST was designed to be pegged firmly to the US dollar to allow for trading on the crypto markets without unpredictable price volatility.
LUNA, meanwhile, acted as a stabilising mechanism for UST arbitrage trading.
Crypto villains of 2022: Do Kwon and Su Zhu go from kingpins to outcasts
Fundamental flaws in their design caused UST to de-peg from the US dollar, causing havoc for the thousands of traders using it for its supposed stability, ultimately leading to some US$40bn in losses on the market.
Kwon has so far refused to cooperate with authorities in his native South Korea who want him on possible capital markets laws violations.
His whereabouts remains unknown, though some prosecutors suspect he may be in Serbia.