Suspicions Rising From the Terra Fallout
Managing a blockchain company through an unprecedented collapse is tough. Doing it while being sued in a South Korean courtroom is even tougher. Yet, that is exactly where Terraform Labs founder, Do Kwon, finds himself today. Days before TerraLuna’s collapse, a number of Terraform Labs lawyers resigned from the company and many on social media are calling for legal action. It is hard to overstate the gravity of Terra's collapse, its radioactive fallout, nor the damning evidence against Mr. Kwon himself.
Leaked documents
Documents obtained by DigitalToday from South Korea’s Supreme Court Registry Office confirm that Terraform Labs was liquidated days before May 11, 2022. Though this may have been done for an ongoing tax investigation, shareholders nevertheless met on April 30 and decided to dissolve the Busan headquarters on May 4 and the Seoul branch the following day. Do Kwon, whose real name is Kwon Do-Hyeong, is named as the official liquidator.
A Reddit user known as getrich_or_diemining posted the official documents:
Photo courtesy: Supreme Court of South Korea Internet Registry Office
Photo courtesy: Supreme Court of South Korea Internet Registry Office
And yet as recently as January 2022 Mr. Kwon told the Harvard Business Review how UST “could become the currency of a future lived mostly online.” Perhaps that could have been true if many investors had not lost their life saving when UST hit $0 last week.
Image courtesy: CoinMarketCap.com
Lawsuits coming
Unsurprisingly, Mr. Kwon has quickly gained an infamous reputation for his mercurial actions in the aftermath of Terra’s collapse. Now the self-avowed “master of stablecoins” faces a tidal wave of legal action.
Fraud, embezzlement and misrepresentation are all possible charges that could be brought against Do Kwon by attorneys.
LKB & Partners is suing Do Kwon on behalf of investors;
The SEC is likely investigating Mr. Kwon and Terraform Labs;
Regulators in Singapore––where Terraform Labs was originally started––are more closely scrutinizing domestic crypto companies.
Do Kwon’s background
Do Kwon graduated from Stanford University in 2015 with a Bachelor's degree in Computer Science. He went on to found the networking startup Anyfi and ecommerce platform Chai; and was included on Forbes’ 30 Under 30 list in 2019. The Terra governance token, LUNA , was launched as an initial coin offering (ICO) in February 2019 and Terraform Labs was established on June 21, 2019, by Shin Hyun-seong in Busan Korea. By 2021 Terra’s stablecoin, UST, market cap was $1 billion and by March 2022 reached $15 billion. In September of that year Mr. Hyun-seong stepped down from the company and Mr. Kwon took over as CEO.
In 2020 Mr. Kwon, under the pseudonym “Rick Sanchez” launched another failed stablecoin, Basis Cash, CoinDesk reported. A former engineer at Terraform Labs, Hyungsuk Kang, has confirmed that Basis Cash was a side project from Terraform Labs, created by himself and Mr. Kwon. CoinDesk also reported that Basis Cash may have been the precursor to the token-burn mechanism used by UST and LUNA that failed on May 11, 2022.
In 2021 Terraform Labs launched the Mirror (MIR) governance token, a digital asset asset that would “mirror” U.S. securities (known as ‘mAssets). Yet by November 2021 Mirror had caught the eye of the SEC who subpoenaed Mr. Kwon to testify for violations of federal securities laws. The Commission cited Terraform Labs’ and Mr. Kwon’ failure to register the “offer or sale of securities, selling security-based-swaps”.
Terra’s uncertain future
Mr. Kwon has proposed resurrecting Terra’s blockchain into “Terra Classic” by forking the current chain. LUNA investors would be reimbursed a pool of 1 billion tokens while Terra would abandon UST altogether. However, Changpeng Zhao, CEO of Binance, called the plan “wishful thinking” on Twitter, stating that “forking does not give the new fork any value”. Cryptoslate reports LUNA investors are likely to squash the proposal in their community vote.
BillyM2K, known as Shibetoshi Nakamoto on Twitter, posted that Mr. Kwon should “leave the space forever.”
