U.S. SEC wants to question Terraform Labs co-founder in Korea

By: Michael Wilson

U.S. SEC wants to question Terraform Labs co-founder in Korea

August 18, 2023 6:11 AM

To clarify the details of Do Kwon and Chai Corporation's contacts with Terraform Labs, the SEC plans to question Daniel Shin.

In its investigation of Terraform Labs and its co-founder, Do Kwon, the U.S. Securities and Exchange Commission (SEC) has been granted permission to interview Terraform Labs co-founder Daniel Shin in South Korea. 

The SEC filed→ a motion on July 10 requesting authorization to investigate Terra's co-founder and to seek documents from Chai Corporation, a payments provider situated in Seoul, South Korea, which was founded by Terra. Judge Jed Rakoff of the District Court authorized the change on August 16.

Chai indicated that the SEC wanted to question Shin Kwon about his role at Chai, the company's use of the Terra blockchain, and the nature of Chai's disclosures, and thus disclosed its relationship with Terraform.

The reason for Chai's resignation from Terraform remains a mystery. Chai was founded by Shin and Kwon in the middle of 2019, and the two companies pooled their resources together until 2020, when they went their separate ways.


View a handful of the questions the SEC wants to ask Shin here.
Source: CourtListener.

Neither Terraform Labs nor Kwon rebutted the SEC's motion, but they did add their own questions and requests for evidence. A negative response to SEC allegations has already been made.

The Securities and Exchange Commission (SEC) filed a lawsuit against Terraform and Kwon in February, accusing them of fraud in connection with the sale of TerraClassicUSD (USTC) and Terra Luna Classic (LUNC), formerly known as Terra (LUNA) and TerraUSD (UST).

Additionally, it stated that Kwon and Terraform lied about how frequently Chai's transactions were settled through the Terra network.

Terraform and Kwon have been accused by the SEC of creating fake transactions in their Korean won pegged stablecoin TerraKRW (KRT) to make it look like Chai was using the blockchain.

In May of 2022, the whole cryptocurrency market collapsed, and with it Terra's $40 billion interconnected crypto economy.

In April, South Korean authorities accused Shin of multiple counts of fraud, alleging that he had hid the risks associated with investing in Terraform's cryptocurrencies.

Kwon tried to use a fake Costa Rican passport to get out of the country and has been locked up in Montenegro for four months because of it.

The SEC has filed suit against Kwon, and he is also facing criminal prosecution in both the United States and South Korea. Both countries have asked for his extradition.