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πΊπ¦ Hacken stands with Ukraine!
Learn moreFor the past four years, Do Kwon, the founder of Terraform Lab, was hyping Lyna and TerraUSD as the world-changing currency. He raised more than $200 million from investment firms such as Lightspeed Venture Partners and Galaxy Digital. Everything changed at the middle of May when the hyped cryptocurrencies turned into a $40B disaster that devastated the entire crypto economy. Investors, who Do Kwon proudly referred to as βLunatics,β have now turned their back on the trash-talking entrepreneur.
The violent plunge of the once-promising stablecoin Terra and its sister token Luna has hit about 280,000 Korean investors. According to the South Korean FIU, at least 100,000 Koreans held 3.17 million Luna before the crash and, at the price of $85 for 1 Luna as of 5 May would equal to shocking $270M.
A group of Luna and TerraUSD Korean investors filed civil and criminal lawsuits against Do Kwon for committing fraud. To compensate for their losses, these investors hired LKB & Partners, a prominent Seoul-based legal firm that filed a court application to seize Kwonβs property. LKB is also looking to drag Shin Hyun-sung, Terraformβs other co-founder, into court. According to the Korea Times, LKB & Partners sued the two co-founders, Known and Shin, at the Seoul Southern District Court.
The Seoul Metropolitan Police cyber-crime unit also reports that investigative authorities requested the freezing of assets from one of Terraformβs employees suspected of embezzling corporate capital.
Terraform Lab has been accused of tax evasion of $78.5 million in South Korea. Do Kwon is to pay $7.8 million to the government. This allegation still needs confirmation.
It is still unknown whether Kwon could actually go to jail. It may be possible. The case of Stefan Qin, a 19-year-old prodigy behind a crypto Ponzi scheme, paints a harsh picture for Kwon. Stefan Qin was sentenced to 7 years behind bars and was fined $350,000. He pleaded guilty to stealing $123 million from Australian and US investors.
There is one remark, though. Qin was brought to justice in New York, while Kwonβs case will be reviewed in Seoul. The main question is whether Kwonβs conduct would be interpreted as fraudulent activity in South Korea. After all, the legal ambiguity surrounding the crypto industry makes it less clear. The bar to prove fraud is relatively high. Kwonβs defense may prove that his behavior was merely reckless.
Letting Kwon go without any repercussions would be dangerous for the crypto industry. It is still unknown whether the victims of Terraβs downfall will receive any financial compensation. Unlike corporations, cryptocurrencies do not have a legal procedure for declaring bankruptcy. Bringing Kwon to justice may be the only real retribution for Terraβs victims.
The Managing Director of the International Monetary Fund, Kristalina Georgieva, referred to the Terra ecosystem as a βpyramid.β One of the most promising altcoins in the crypto industry was not backed with assets. At the same time, the Terra ecosystem promised 20 percent returns to investors. The apparent difference between the actual situation and what was promised may help prove Kwonβs fraudulent behavior.
The fall of Terra has drawn the attention of Korean regulators. South Koreaβs financial authorities and the government promised to introduce legal safeguards for the crypto industry. The financial regulator wants to strengthen the supervision of crypto exchanges. The goal of new measures is well-known, to prevent something like Luna and UST collapse from happening again. In this light, most crypto investors and enthusiasts would support such a move.