In an updated lawsuit against Do Kwon SEC claims that the founder of Terraform Labs carried out fake transactions for partner payment platform Chai.
According to the department, the heads of the two companies misled investors by demonstrating that payments were made on the Terra blockchain. In fact, the transactions were settled “traditionally,” the regulator noted.
Among the evidence, the SEC attached a screenshot of Kwon’s correspondence with another Terraform co-founder, Daniel Shin. The latter created and headed the payment platform.
“I can just create fake transactions that look real, which will incur fees. We may wind this down as Chai grows,” the then-CEO of Terraform said in emails.
Shin responded by expressing concern about users becoming aware of fraudulent transactions.
“All the power belongs to those who can prove that it is a fake. So I’ll try to make it invisible. I won’t tell you if you don’t,” Kwon said.
The partnership between Terraform and Chai ended in 2020. But according to the SEC, the collaboration lasted long enough to effectively carry out the deception scheme.
Investors bought “hundreds of millions of dollars worth” of LUNA and other tokens under the belief that Chai’s related transactions were executed on the Terra blockchain, the Commission alleged.
In February, the SEC charged Kwon with securities fraud. The agency included LUNA and the algorithmic stablecoin TerraUSD (UST) as the latter.
Since May 2022, South Korean authorities have been investigating the collapse of the Terra ecosystem, which became the trigger for the fall of the crypto market.
In September, prosecutors issued an arrest warrant for Kwon and five other Terraform employees. The former CEO of the company was detained in Montenegro in March 2023. The US Attorney’s Office then filed criminal charges against him.
According to Korean law enforcement officers, the founder of Terraform may face several prison sentences in both countries.
In March, South Korean authorities brought criminal charges regarding the collapse of Terra and Shin. Earlier it became known that Chai is also under investigation for operating a service based on the won-pegged stablecoin KRT from Terraform.
Let us remember that in June a court in Podgorica found Kwon guilty of forging documents while trying to leave Montenegro.
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