Original source: BitpushNews
Original source: BitpushNews
Business fraud, cash out 100 million U.S. dollars, US SEC documents expose more fraud details behind Terra
In the filing, the SEC alleges that Kwon and other interested parties "engaged in a scheme to defraud and mislead investors ... in the United States and abroad," allegations that echo the narrative that Kwon, 31, and his partners have portrayed to investors and the global media. The personalities are completely different.
Here are some highlights of the complaint from the SEC filing:
1. Unstable “stablecoins”
Terraform and Kwon misled investors about the stability of TerraUSD (UST). The token is positioned as an algorithmic stablecoin, claiming to use complex mathematical algorithms to ensure a 1:1 peg to the U.S. dollar.
The token was depegged in May 2021, causing panic among users. If the peg is not restored quickly, it "will spell doom for the entire Terraform ecosystem," the SEC wrote.
At this point, Kwon "secretly" sought help from a third party, not named in the document but reported by The Block to be Jump Trading. Jump bought a "substantial" amount of UST to help restore its peg, but this effort was publicly touted as a victory for UST's decentralized, spontaneous, self-correcting capabilities, leading investors to continue pouring billions into the product .
SEC filings show that Jump ended up earning about $1.3 billion from the deal with Terraform.
2. Do Kwon and his cohorts are cashing out on a massive scale
Business fraud, cash out 100 million U.S. dollars, US SEC documents expose more fraud details behind Terra
But the SEC filing reveals more specific and broader allegations. They allege that Kwon and cohorts "moved more than 10,000 bitcoins from Terraform and Luna Foundation Guard accounts into a non-custodial wallet."
The SEC claims that since June 2022, they have transferred more than $100 million in bitcoin to an unnamed Swiss bank and converted it into fiat currency.
Bringing Kwon to justice could be a tricky process because his exact location remains unknown, and Bloomberg reported last week that he had been spotted in Serbia, where South Korean prosecutors recently visited to discuss his case with local officials . Kwon's South Korean passport has been revoked and his name is on Interpol's most wanted list.
3. More false business relationships than imagined
In an attempt to create trust in the Terraform blockchain, Kwon and his team claim that a South Korean payments company called Chai is using it to settle millions of transactions. That, the SEC said, was completely fabricated.
Chai Corporation was founded by Daniel Shin Hyun-seung, who is also the founder of Terraform. Kwon is on the board of Chai, and the two companies share office space and staff. South Korean authorities are investigating Chai and Shin, Forkast News reported in November, citing a spokesman for Chai as saying, "Daniel will fully cooperate with the ongoing investigation to clarify misunderstandings and resolve such speculation."
The SEC said Terraform and Kwon made "false and misleading statements" in public interviews about Chai's involvement as part of a solicitation effort. This included a PPT presentation of Chai's speed and efficiency in using the Terraform blockchain to a U.S. institutional investor.
The SEC wrote in the charging document that in order to deceive people who tracked the Terraform blockchain into obtaining evidence of Chai transactions, Kwon's team programmed the server to receive and process data about Chai's real transactions with Korean merchants, and then contributed to the Terraform block. The chain issued instructions to replicate those transactions, and in fact, according to the allegations, “no Chai transactions occurred on the blockchain.”
In other words, Do Kwon not only exaggerated the Chai-Terra relationship in his own statements, but also created an entire fake server to transfer fake funds to simulate fake transactions, with the express purpose of defrauding investors.
4. Unregistered securities
UST and other Terraform-related tokens are unregistered securities, the SEC said. These include so-called wrapped tokens created when transferred between blockchains, and mirror tokens designed to replicate price movements of listed stocks.
Terraform's failure to register these various products violated U.S. securities rules, the SEC said.
The charge is likely to be the most watched part of the trial, as the crypto industry is highly sensitive to any claims by the SEC that tokens are securities.
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