The Justice Department (DOJ) announced Jan. 2 that Do Hyeong Kwon, 33, co-founder and former CEO of Terraform Labs PTE Ltd. (Terraform), appeared in federal court to face fraud charges for allegedly engaging in schemes to deceive investors and inflate the value of Terraform cryptocurrencies.
A superseding indictment alleges that between 2018 and 2022, Kwon orchestrated schemes to defraud investors and inflate the value of Terraform’s cryptocurrencies, the department said.
Kwon made false claims about the stability and functionality of Terraform’s stablecoin protocol, blockchain technology, and financial systems, despite knowing they were flawed, the department added.
Kwon manipulated products to create the illusion of stability, inflating the value of Terraform’s cryptocurrencies, which he and entities he controlled sold for billions of dollars, according to the department.
The DOJ outlined several key misrepresentations, including:
- Stablecoin Claims: Kwon falsely promoted the Terra Protocol as maintaining the stablecoin TerraUSD (UST) at $1 using an algorithm. After UST’s peg failed in May 2021, Kwon secretly arranged with a trading firm to purchase large amounts of UST to artificially support the peg.
- Luna Foundation Guard (LFG): Kwon claimed Luna Foundation Guard Ltd. (LFG) was independently managed to protect UST’s peg, but he secretly controlled it, misappropriated hundreds of millions of dollars, and laundered the funds.
- Mirror Protocol: Kwon misled investors about the decentralized nature of Mirror Protocol, a platform for synthetic assets, while secretly controlling it and using trading bots to manipulate asset prices.
- Chai Transactions: Kwon falsely claimed the Terra blockchain processed billions of dollars in transactions for the Korean payment app Chai, although transactions were conducted through traditional networks.
- Genesis Stablecoins: Kwon misused $145 million in stablecoins intended for specific purposes to fund fake transactions and manipulate asset prices.