Terraform Labs CEO Do Kwon Could Be Charged With Ponzi Fraud

Terraform Labs CEO Do Kwon Could Be Charged With Ponzi Fraud

In a recent development, it has been established that the prosecutors could move to bring Ponzi fraud charges against the CEO of Terraform Labs, Do Kwon. The news broke a day after several investors sued him for the collapse that brought down LUNA and UST. Both of these are the two main tokens from Terraform Labs.

The algorithmic stablecoin, TerraUSD, and its sister token, LUNA, love almost 99.99% of their value. As a result of this crash, about $38 million were lost within a week. This came as a major shock to the community of Terraform Labs. LUNA was among the top-performing tokens in the market last year. After posting a high of $120, now the coin is worth fractions of a cent. Also, UST lost its peg to $1 as well.

More Challenging Times Await Terraform Labs

Even though there is no clear estimation of the damage caused by LUNA’s collapse, there are still around 280,000 investors that hold the coin. On the other hand, five investors from South Korea filed complaints with criminal charges against Do Kwon. These fraud and financial irregularity charges were also pressed against the Co-Founder of Terraform Labs, Daniel Shin. The investors said that their combined damages were almost 1.40 billion won.

Do Kwon

The prosecutors of the case are evaluating if they can proceed to make it a Ponzi scheme case. However, the role of the Anchor Protocol will remain critical here. The Anchor Protocol application was used to facilitate contracts between the depositors of UST. It was a major contributor to the growth and scaling of the algorithmic stablecoin.

However, the Anchor Protocol guarantees a 20% annual return to its users. This could be used against Do Kwon. The Financial and Securities Crime Join Investigation team will investigate if the Terraform Labs owner promoted unsustainable stable yield on UST deposits through the Anchor Protocol. If it is proven, Do Kwon could face charges of leading a Ponzi Scheme.

Terraform Labs kept the interest at 20% even though it became unsustainable as the market crashed. Many experts believe that the protocol used the money of LUNA investors from its treasury to keep the interest rates high.

Moreover, it is also reported that Do Kwon has moved away from South Korea. He has also moved his liquid assets out of the country. This indicates that Do Kwon might fear more cases and investigations against him. He could be tested and trialed in the coming days as well.