terraform labs - Pwim.Net

SEC Seeks $5.3B Judgment Against Terraform Labs and Do Kwon

The United States Securities and Exchange Commission (SEC) has initiated legal proceedings against Terraform Labs and its co-founder, Do Kwon, by submitting a demand for the company to pay civil fines and disgorgement in the amount of billions of dollars. The SEC has filed a petition in response to a judgement in a civil matter, and the purpose of the move is to hold Terraform Labs and Kwon responsible for the alleged violations they have committed.

Disgorgement and Civil Penalties: The Securities and Exchange Commission (SEC) has demanded that Terraform Labs and Kwon pay roughly $4.7 billion in disgorgement and prejudgment interest. Disgorgement is the process of repaying earnings that were obtained by dishonest means, while prejudgment interest is a kind of compensation for the time worth of money. Moreover, the Securities and Exchange Commission is requesting a total of $520 million in civil penalties, with Terraform Labs being responsible for $420 million and Kwon being responsible for $100 million.

possible Solutions: Terraform Labs and Kwon have both submitted their briefs in the civil case, in which they propose several possible solutions to the problem. In their proposal, Terraform Labs suggested a maximum civil penalty of $3.5 million, whereas Kwon suggested a penalty of $800,000. The SEC’s proposed sums are much higher than these estimates, which are substantially lower.

The Securities and Exchange Commission (SEC) is contemplating the imposition of further measures to deter future breaches, in addition to the disgorgement and civil penalties that have already been imposed. The Securities and Exchange Commission has requested that Kwon be prohibited from acting as an officer or director of a securities company. In addition, the Securities and Exchange Commission is attempting to get a “conduct-based injunction” in order to guarantee that Terraform Labs and Kwon would not commit breaches of a similar kind in the future.

The importance of SEC enforcement is shown by the fact that the SEC has filed a request for disgorgement and civil penalties against Terraform Labs and Do Kwon. This action demonstrates the regulatory agency’s dedication to safeguarding investors and prosecuting those who violate securities laws. By ensuring that both people and businesses are held responsible for their activities, the Securities and Exchange Commission (SEC) strives to preserve the integrity of the financial markets and to encourage fair practices.

Image source: Shutterstock

Terraform Labs Sues US SEC for Illegally Issuing a Subpoena on its CEO

Terraform Labs, the Singapore-based blockchain startup behind the Terra protocol, has filed a lawsuit against the United States Securities and Exchange Commission (SEC) for allegedly issuing an illegal Subpoena on its Chief Executive Officer- Do Kwon.

Kwon and Terraform Labs posited that the SEC does not have jurisdiction to serve the Subpoena as it did as the blockchain protocol is based outside of the U.S.

The challenge raised by Subpoena that Kwon and his lawyer, Denton US LLP, was served by the SEC earlier this year as the American market watchdog demanded that Terraform Labs produce documents to support a probe into the network’s Mirro Protocol, a decentralized finance protocol built on Terra that is governed by its stakeholder community.

Kwon and Dentons revealed in the filing that despite its hours of deliberations with the SEC to make the regulator understand what the Mirror Protocol is all about and how the SEC’s concerns could be addressed. The regulator still went ahead to serve a subpoena for documents that are not readily available. The filing reads:

“The SEC attorneys were well aware that TFL and Mr. Kwon had consistently maintained that the SEC lacked jurisdiction over TFL and Mr Kwon, and at no time asked Dentons lawyers whether it was authorized to accept service of subpoenas,”

Kwon and his lawyers flagged the process in which the Subpoena was issued and asked the court to declare them null and void as they do not follow SEC’s own rules.

The lawsuit also maintained that the market regulator did not keep the confidentiality it is meant to follow in issuing the Subpoena as the commission hired a private agent with the name, Cavalier Courier And Process Services who delivered the Subpoena in a way to embarrass and intimidate Kwon at Messari’s Mainnet event where the CEO was scheduled to make a presentation.

While the SEC is renowned for pursuing controversial probes, a blockchain firm seems to have taken the fight to the regulator this time. Prior to the time, the case will be concluded, Kwon and his lawyers pray the court to adjourn the compliance dates of the Subpoenas.

Prosecutors Investigate Do Kwon with Ponzi Fraud Charges amid Terraform Labs Dissolvement

Do Kwon’s scandal seem to be deepening. Prosecutors are investigating whether they will file Ponzi fraud charges against him following the Terra crash, according to The Korea Times.

This comes a day after LUNA and UST investors filed a legal complaint against Do Kwon and Daniel Shin, the co-founders of Terraform Labs. LUNA and UST are the native tokens of the Terra network developed by South Korean fintech company Terraform Labs.

Having wiped out at least $38 billion of investors’ money in a week, prosecutors in South Korea are delving deeper into the Terra crash. For instance, the Seoul Southern District Prosecutors Office that is leading the case intends to seek the services of an investigation team based on lodged complaints and various factual backgrounds.

Per the announcement:

“Prosecutors in charge of the case are looking into whether they can make a Ponzi scheme case against “Anchor Protocol,” under which depositors of TerraUSD are guaranteed a 20 percent annual return.”

Financial authorities believe 280,000 South Korean investors hold approximately 70 billion LUNA coins, even though the exact amount remains unknown.

Earlier this week, relevant governmental agencies beefed up crypto exchange inspections to try and unravel what transpired during the crash.

Did Do Kwon dissolve Terraform Labs just days before the crash?

Reportedly, Kwon dissolved Terraform Labs on April 30, just days before the Terra tokens came down with a thud.

According to Digital Today, based on official documents in the custody of South Korea’s supreme court registry office, the decision to terminate the firm was reached at a general shareholders meeting held on April 30.

Similar sentiments were shared by a Reddit user, who noted:

“KWON-DO-HYUNG is listed in this Korean document as dissolving his company Terraform Labs on April 30th, registered May 4th. The act of dissolving just days before the collapse of UST suggests the intent to eliminate responsibility for the aftermath, which serves as evidence that he knew something was going to happen.”

Moreover, Kwon was recently slapped with a tax evasion fine of $78 million, Blockchain.News reported.

LUNA and UST Crash Could Have Been Averted if Bitcoin Reserves were Used Earlier, Binance CEO Says

The collapse of LUNA and UST, the native tokens of the Terra network, could have been avoided if the Luna Foundation Guard (LFG) had used its Bitcoin reserves earlier, according to Binance CEO Changpeng Zhao (CZ).

Sharing his insights on the Binance website, CZ noted:

“The Terra team was slow in using their reserves to restore the peg. The entire incident may have been avoided if they had used their reserves when the de-peg was at 5%. After the value of the coins had already crashed by 99% (or $80 billion), they tried to use $3 billion to do the rescue. Of course, this didn’t work.”

Things started going wrong when the price of the algorithmic UST stablecoin experienced a free fall to the extent that it hit lows of $0.225 from its $1 peg.

Later on, LUNA sent shockwaves to the crypto market because it nearly lost 100% of its value overnight after reaching the near-zero level.

CZ also opined that the rain started beating the Terra network after more LUNA was minted in an attempt to salvage the situation. He pointed out:

“Printing money does not create value; it just dilutes existing holders. Exponentially minting LUNA made the problem a lot worse.”

The other flaw entailed using over-aggressive incentives like Anchor’s 20% annual percentage yield (APY). CZ stated:

“Specifically, Anchor’s 20% fixed APY to push for (in-organic) growth. You can use incentives to attract users to your ecosystem. But eventually, you need to generate “income” to sustain it, i.e., more revenue than the expenses. Otherwise, you will run out of money and crash.”

The Terra crash has triggered intense investigations on whether there was something sinister from the network founders. For instance, prosecutors indicated that they could file Ponzi fraud charges against Do Kwon, the CEO of Terraform Labs, and the face behind the Terra network.

Claims have also surfaced that Terraform Labs was dissolved on April 30, just days before the Terra tokens collapsed.

Terraform Labs Staff Discloses LUNA's Potential Risk of Crash but Neglected: South Korean Authority

Carried out by the Seoul Southern District Prosecutor’s Office’s joint financial and securities crime investigation team, The staff of Embattled blockchain startup Terraform Labs have been called for questioning as part of an investigation.

As reported by local news channel JTBC, the inquiry sought to know whether Do Kwon and the purveyors of the blockchain network were aware of the flaws in the system and its model before deploying and promoting it to global investors.

The suspicion of the Prosecutors seems to be answered as an unnamed staff who joined Terraform Labs as an early developer back in 2019 disclosed that there were concerns raised back then with respect to the unsustainability of the Terra model but all warning signs were neglected by Do Kwon.

The alleged high-handedness of Do Kwon has been seen as a fraudulent attempt, coupled with the fact that he allegedly tried to liquidate his assets in a bid to move Terraform Labs’ operations out of South Korea. While Do Kwon has denied all these allegations, South Korean regulators have decided to leave no stone unturned and have extended their scrutiny to crypto exchanges.

The regulators seek to know whether the top crypto trading platforms operating in the country have appropriate safeguards to prevent future attacks and devaluation as LUNA and UST. While the investors of LUNA and UST are awaiting a recovery, Do Kwon and his team have launched Terra 2.0 which will operate without the associated UST stablecoin.

The new blockchain and its token has been airdropped to holders of the LUNA and UST token before and after the protocol was attacked. The airdropped token got off to a rocky start as its price plunged from a high of $19.54 to a low of $3.63 over the weekend, according to data from CoinMarketCap. While regulators are seeking answers and safeguards against future occurrences, Do Kwon’s attempt to revive the ecosystem seems to be working for now.

Second Circuit Court Order's Terraform Labs and Do Kwon to Comply With SEC's Subpoena

The 2nd US Circuit Court of Appeals has upheld a ruling that compels blockchain startup Terraform Labs, and its co-founder Do Kwon into complying with a September 2021 Subpoena served him at a New York Conference.

Against initial perception, the subpoena is unrelated to the collapse of the startups’ tokens, including the UST algorithmic stablecoin and Luna Classic (LUNC) tokens. It is, however, related to one of Kwon’s early projects, the Mirror Protocol, which lets users mint synthetic asset that tracks the price of US Securities like Tesla and Apple stock amongst others.

Do Kwon and his lawyers had argued at the time that the Securities and Exchange Commission (SEC) has no jurisdiction over it. Still, the latest ruling by a US Federal Judge affirmed that the regulator has the authority to serve the subpoena, thus invalidating Terraform Labs’ arguments.

“Appellants’ reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings,” the appeals court wrote in its decision.

Part of its basis for declaring that the SEC has the proper jurisdiction is centred on the fact that Kwon’s Mirror protocol which is now unable to function properly with the collapse of UST, is often offered to US investors. The court also highlighted facts in which Terraform Labs paid a US-based exchange platform the sum of $200,000 in order to list the synthetic tokens for trading.

The order to comply with the SEC’s subpoena comes off as one of the many legal woes Do Kwon and his Terraform Labs team are facing at the moment. The collapse of the platform’s associated tokens showed how vulnerable the startup is, and things are not looking better, even though the startup has launched Terra 2.0 after receiving majority backing from the community.

MAS Insists Terra, 3AC Unlicensed to Operate in Singapore

Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS) has corrected the misconception about how some of the most distressing crypto firms are linked to Singapore. Menon indicated that crypto entities like Terraform Labs, the Luna Foundation Guard or Three Arrows Capital are without proper licenses in Singapore.

In his annual report speech for the 2021/2022 financial year, Ravi said claims that Terraform Labs and the Luna Foundation Guard are “Singapore-based” is false, but rather, the duo is “not licensed or regulated by MAS, nor have they applied for any license or sought exemption from holding any license.”

The MAS boss said liquidated Three Arrows Capital is not regulated under the established Payment Services Act but” had operated under the registered fund management regime to carry out limited fund management business” in the country, an activity it has stopped and has “ceased to manage funds in Singapore prior to the problems leading to its insolvency.”

Ravi Menon also shed insights into the status of Vauld Group as an entity that is “currently not licensed by MAS nor has it sought any exemption from holding a licence under the Payment Services Act.” Menon affirmed that Vauld has “submitted a licence application, which is pending review.”

The misconceptions about the status of these companies come off as another false information flying around in the digital currency ecosystem, which Ravi Menon said the MAS has been warning the public about for the past five years. He still reiterated that retail investments in the crypto ecosystem are very risky and that it will organize a dedicated Green Shoots seminar to share its strategies for the crypto ecosystem in August.

The administration plans to broaden crypto regulation in response to the recent market turmoil in the crypto space. The MAS might further tighten retail-investor access to crypto by covering more activities, Menon disclosed without further evaluation. The consultation is expected to conduct during September and October.

The Monetary Authority of Singapore is one of the most bullish regulators when it comes to the embrace of digital currency initiatives. However, the apex bank has never compromised on its standards when it comes to granting licenses to startups offering services in the space, a move that has pushed Binance away from its application to do business in the country.

Korean Prosecutors Consulting if LUNA Classified "Security"

The probe into Terraform Labs by South Korean prosecutors is taking a whole new twist as watchdogs are making consultations on how best to classify the collapsed LUNA tokens – now known as Luna Classic (LUNC).

As reported by the Korean Herald, the Seoul Southern District Prosecutors Office’s Financial and Securities Crime Joint Investigation Team is consulting with industry stakeholders to determine the best designation for LUNA coins. Should the consultation lead to the recognition of the coin as a security, it will complicate the ongoing case for Terraform Labs as it will now also be violating the Capital Markets Act.

The collapse of Terraform Labs’ associated tokens, including LUNA and the algorithmic TerraUSD (UST) stablecoin back in May effectively ushered in the first wave of the crypto winter. With the plummeted prices, companies who had exposure to the assets suffered such financial challenges that many, like Three Arrows Capital (3AC), could not recover from.

Besides corporate startups who went bankrupt on exposure to the LUNA tokens, retail investors also suffered a tremendous amount of loss. In Korea alone, as many as 270,000 investors had exposure to LUNA and UST, with most ending in losses at this time.

According to the Korean Herald, South Korean prosecutors are broadening their investigations into the company. This move has stirred targeted raids on the home premises of Terraform Labs Co-Founder Daniel Shin as well as those of trading platforms that are suspected to have dealings with the now defunct company.

With more details still required by the prosecutors, there is no doubt that Do Kwon and Terraform Labs will face some reprimand. For now, however, Kwon’s whereabouts seem to be staling the process, but the prosecutors have issued a standing that will alert them once Do Kwon sets his feet on Korean shores.

Singaporean Police Force Claims Do Kwon is Not in Singapore

The Singapore Police force has made it known that Kwon is not in Singapore.

This statement comes after a Spokesperson claimed that Kwon and five other individuals were issued an arrest warrant and were hiding in Singapore to avoid arrest.

Do Kwon, the primary developer of the LUNA cryptocurrency and the founder of the blockchain platform, terraform lab has been battling fraud charges due to the collapse of the two cryptocurrencies associated with Terraform Labs in May. Investors lost billions of dollars to the collapse globally and many have even called it a Ponzi scheme.

According to various sources, Kwon was subjected to a Search and Seizure operation in July but has pledged his commitment to corporate to local authorities as regards charges issued against him.

Singapore’s police have pledged their support to South Korea in the case of Kwon based on its jurisdictions both locally and internationally.

Terra USD became popular early in the year with the company’s non-profit outfit Luna Foundation Guard which is the company behind Terra USD made a pledge to acquire $10 billion worth of bitcoin to support its peg to the dollar.

The algorithmic stablecoin further depegged from the dollar, sending an imbalance into the broader Terraform ecosystem. The cataclysmic drop in the LUNA and UST resulted in a ripple slump that affected other protocols and hedge funds connected to Terraform Labs.

With Do Kwon facing charges in at least one jurisdiction, he has come off as one of the most distressed personalities in the crypto ecosystem in recent times.

South Korean Watchdogs Request Interpol’s Red Notice against Do Kwon

The controversy surrounding Do Kwon’s whereabouts continues to grow, given that South Korean prosecutors asked Interpol to issue a red notice against the Terraform Labs’ founder.

The Seoul Southern District Prosecutor’s Office had aired its tribulations about Kwon’s noncooperative nature and that he did not intend to show up for questioning.

“Prosecutors have made a request to Interpol for their assistance to locate Kwon, whose whereabouts remain unknown and to have him handed over to Korea,” the Prosecutors office said, adding that “Currently, we are in the process to locate the whereabouts of suspect Do Kwon and apprehend him,” a prosecution official added.

Over the weekend, Do Kwon insisted that he was not on the run and tweeted:

“I am not ‘on the run’ or anything similar – (from) any government agency that has shown interest to communicate, we are in full cooperation, and we don’t have anything to hide.”

Following the collapse of Terraform Labs’ native tokens UST and Luna in May, the crash triggered a $60 billion crypto meltdown. As a result, South Korean authorities have been pursuing him to get to the bottom line of the matter.

Recently, Seoul Court issued an arrest warrant for Do Kwon and five others for violating the nation’s capital markets law, Blockchain.News reported.

Furthermore, various lawsuits against Kwon have emerged from investors in different countries.

A red notice issued by Interpol requires law enforcers globally to restrict persons from undertaking cross-border travels and being issued with visas. Moreover, it guarantees the provisional arrest of an individual pending surrender or extradition.

Kwon had initially travelled from South Korea to Singapore, given that Terraform Labs had a base at the latter. Nevertheless, his whereabouts remain scanty because the Singapore Police force hinted that Kwon was not in the nation.

LUNA sent shockwaves to the crypto market after collapsing to near-zero overnight despite it being among the top ten cryptocurrencies in May.

Things started going south when the algorithmic UST stablecoin on the Terra network experienced a free fall to the extent that leading crypto exchange Binance temporarily halted its withdrawals together with that of LUNA.