The Seoul Southern District Prosecutor’s Office in Korea is investigating whether it can file Ponzi scheme charges against TerraForm Lab’s CEO, Do Kwon.
The prosecutor’s department in Korea is charging TerraForm Labs co-founder Do Kwon for running a Ponzi scheme using the Anchor protocol, a type of crypto bank where depositors can earn up to 20% a year for betting on Terra . “Kwon’s remarks promising a return could provide an important clue,” a prosecutor told the Korea Herald. Named after the Italian fraudster Charles Ponzi, a Ponzi scheme rewards existing or early investors with money paid out by new investors. When new investors run out of money, the Ponzi scheme collapses. As BeInCrypto recently reported, FTX CEO Sam Bankman-Fried recently described produce farming as a Ponzi scheme.
Trial begins against Terra
Last Thursday, five Korean investors clubbed together to file a class-action lawsuit against Kwon and co-founder Shin Hyun-seong with law firm LKB & Partners. The lawsuit claims that TerraForm Labs did not make investors aware of the vulnerabilities of the algorithmic stablecoin Terra (UST), resulting in a loss of $1.1M to investors. Six lawyers from the Capital Markets Law and Intellectual Property teams at LKB also filed a provisional order to seize assets belonging to Kwon. Some LKB employees also lost money as UST fell from its dollar peg earlier this month, shocking the industry. TeraUSD derives its stability from an algorithmic relationship with Luna, its sister coin.
“There are related investors inside the law firm, and we plan to file a complaint against CEO Kwon at the Financial Investigation Unit of the Seoul Metropolitan Agency,” said Kim Hyun-kwon, a partner at the law firm.
Terraform’s legal team left after the UST accident, and outside attorneys are now handling all of the company’s legal matters.
Institutional investors criticized for giving Terra credibility
Kwon, a 30-year-old Stanford alumnus who previously worked as a software engineer at Microsoft and Apple, began offering the Luna cryptocurrency to investors in 2018. Early backers of the project included Pantera Capital, Galaxy Digital and Lightspeed Venture Partners. Pantera Capital sold its Luna holdings last year to generate over 100x its initial investment, collecting approximately $170M from an initial investment of $1.7M. Paul VereditKit, an investor at Pantera, said after a recent run that while TeraUSD, the stablecoin offered by TerraForm Labs since 2020, crashed from its dollar peg, “a lot of retail investors have lost money. I’m sure a lot of institutional investors have as well.” Kathleen Breitman, one of the founders of the Tezos blockchain, said that the institutional investment in TerraForm Labs “gives a false sense of security to people who otherwise might not have known about these things.”
What did you think of this topic? Write to us and let us know!
