By
Chimamanda U. Martha
April 19th, 2024
The US SEC has asked Terraform Labs to comply with the regulation and found that $80 million from company’s funds were moved to different wallets before the LUNA crash.
Following the collapse of the Terra ecosystem last month, the parent firm Terraform Labs has been facing multiple cases of investigation in the home country of South Korea. However, on Thursday, June 9, the US SEC launched a fresh investigation into whether Terraform Labs’ marketing of the UST stablecoin, before the crash, violated the federal regulations for investor protection.
SEC Investigates Terraform Labs
The dramatic collapse of the Terra ecosystem has been a wake-up call for the crypto industry as well as regulators. Terra’s native stablecoin TerraUSD (UST) underwent a major de-pegging from $1 which led to the collapse of the entire LUNA ecosystem. This unfortunate event eroded more than $60 billion of investors’ wealth in a week’s time.
The SEC investigation dates back to September 2021, when the US SEC issued subpoenas to Terraform Labs and founder Do Kwon. On Wednesday, June 8, the second circuit asked the company to comply with the investigation.
The SEC has said that Do Kwon cannot avoid the investigation under the pretext that it’s a South Korea-registered company. Since Terraform Labs served U.S. customers, it will have to respond to US regulators.
The Seoul Metropolitan Police Agency is also investigating allegations that Terraform Labs embezzled its Bitcoin holdings and served to protect the UST peg. It is checking into the transactions of the suspicious crypto wallet reportedly used by the firm.
The alleged embezzled BTC appears to belong to Terra’s parent firm Luna Foundation Guard (LFG). To defend the UST peg, LFG had amassed Bitcoin reserves worth $3.5 billion.
Terra Employees Blame Founder Do Kwon
During the recent investigation, Terra employees blamed founder Do Kwon for being involved in money laundering activities. As per South Korea’s local news publications Naver and JTBC, the US SEC has caught Do Kwon off-guard during their investigation. On Thursday, June 9, JTBC reported:
“The US Securities and Exchange Commission recently conducted a remote video survey of some of Terra’s key designers and focused on inquiring about Terra’s poor design structure.”
Earlier, the key designers also told JTBC they had already predicted the collapse of Terra and LUNA. They also warned Do Kwon several times who refused to pay any attention. Reportedly, the US SEC also discovered a situation where $80 million of the company’s funds moved to different wallets every month.
This happened a few months before the crash raising suspicion of money laundering by Do Kwon. If the charges turn out to be true, Terra’s founder could face a major investigation by US regulators.