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 following its collapse in May 2022.
According to the SEC complaint filed in the U.S. District Court for the Southern District of New York on Feb. 16, Kwon and Terraform have transferred more than 10,000 Bitcoin (BTC) from the platform and the Luna Foundation Guard to a cold wallet, then to a Swiss bank account to convert to fiat. The financial regulator said that the Terra co-founder and his company may have access to more than $100 million in cash since withdrawals started in June 2022.
In addition to identifying the stockpile 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 solicited a third party to purchase “massive amounts of UST to restore the $1.00 peg” when it dropped below $1 in May 2021, misleading investors as to its stability and reliability:
“UST’s price falling below its $1.00 ‘peg’ 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 any other backing.”
The SEC also claimed several of the tokens involved in the collapse of Terra were “crypto asset securities” falling 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 for these crypto assets by touting their profit potential,” said the SEC. “Defendants repeatedly stated that the crypto assets would increase in value based on Terraform’s development, maintenance, and promotion of its blockchain, protocols, and the entire Terraform ecosystem.”
Terra’s business connections 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 happened in the real world using Korean Won” while claiming to the public that Chai transacted on the blockchain.
“In at least five instances between October 2021 and March 2022, there were one…
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