South Korean Prosecutors Find New Evidence against Do Kwon

UTC by Chimamanda U. Martha · 3 min read
South Korean Prosecutors Find New Evidence against Do Kwon
Photo: Freepik

While Hyun-Sung has denied helping Kwon deceive investors, Kwon is still awaiting trial for the collapse of the blockchain, which instigated the 2022 crypto market winter.

Prosecutors in South Korea have obtained new evidence suggesting that Terraform Labs co-founder Do Kwon, who was arrested in Montenegro last year for defrauding investors, conspired with former Chai Corporation founder Shin Hyun-Sung to deceive investors through fake transactions.

According to reports from local news media, Kwon and Hyun-Sung orchestrated fraudulent transactions to artificially inflate the perceived value and demand for TerraUST and its sister token LUNA.

Both tokens, which served as the native cryptocurrencies of the now-defunct Terra blockchain, went to zero in March 2022. Before the collapse, Terraform Labs partnered with Chai, a payment platform co-founded by Hyun-Sung on June 12, 2019, to facilitate transactions for Terraform users. On June 17, prosecutors presented evidence in the court during a trial for Hyun-Sung who has been indicted from the beginning as an accomplice to the collapse of the blockchain.

Fake Transactions to Mislead Investors

The evidence alleged that Kwon and Hyun-Sung worked together to deceive investors by providing proof of fake transfers.

According to the report, these transactions were allegedly designed to mislead investors about the actual market activity and viability of the Terra platform.

The evidence presented at the Seoul Southern District Prosecutors’ Office on Monday included a phone discussion between the two executives in May 2019, where Kwon and Hyun-Sung exchanged messages regarding Terra’s operations.

In the chat, Kwon told Shin that he could “create fake transactions that look real”. adding that the app could dilute the number of fake transactions as it grew, making them “indistinguishable”.

Hyun-Sung agreed to be part of the scheme and suggested testing the scheme on a “small scale to see what happens before making a big move.”

Despite the glaring evidence, Hyun-Sung pleaded not guilty and denied all the charges brought against him in court. He also attributed the collapse of the Terra blockchain to Kwon’s “unreasonable management and external attacks.”

Consequences for Do Kwon

While Hyun-Sung has denied helping Kwon deceive investors, Kwon is still awaiting trial for the collapse of the blockchain, which instigated the 2022 crypto market winter.

After the protocol’s collapse in March 2022, Kwon vanished without a trace. However, he ran out of luck last year when he was apprehended by authorities in Montenegro while trying to use a fake passport to escape the country.

Since then, he has been in Montenegro until the court recently approved his extraction to South Korea. He was now awaiting to be sent back to his home country where he was faced with multiple charges related to fraud.

In addition to South Korea, he is facing legal consequences in the United States and a few months ago he was summoned to the court to answer for his crimes before going back to South Korea.

During the trial, a US court found him guilty of defrauding investors by misrepresenting the uses of TerraUST and other offerings.

The suit was brought against him by the US Securities and Exchange Commission (SEC). As of June 17, Kwon has reached a settlement deal with the SEC, agreeing to pay up to $4.47 billion in disgorgement and fines.

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