U.S. SEC Officially Charges Disgraced Terra (LUNA) Founder Do Kwon With ‘Defrauding Investors in Crypto Schemes’

February 18, 2023 The Daily Hodl

Do Kwon removed 10K Bitcoin from Terra after collapse — Takeaways from SEC complaint

February 17, 2023 Coin Telegraph

The SEC complaint included allegations around claims of TerraUSD’s peg, Terra’s relationship to Chai, and co-founder Do Kwon cashing out for millions.

A complaint filed by the United States Securities and Exchange Commission said Terra co-founder Do Kwon and Terraform Labs laundered more than $100 million worth of Bitcoin from the platform following its collapse in May 2022.

According to the SEC complaint filed in the U.S. District Court for the Southern District of New York on Feb. 16, Kwon and Terraform have transferred more than 10,000 Bitcoin (BTC) from the platform and the Luna Foundation Guard to a cold wallet, then to a Swiss bank account to convert to fiat. The financial regulator said that the Terra co-founder and his company might have access to more than $100 million in cash since withdrawals started in June 2022.

In addition to identifying the stockpile of Bitcoin, the SEC said Kwon and Terra artificially restored TerraUSD’s (UST) dollar peg — the stablecoin had been one of the largest by market capitalization at the time the platform collapsed. According to the complaint, the platform solicited a third party to purchase “massive amounts of UST to restore the $1.00 peg” when it dropped below $1 in May 2021, misleading investors as to its stability and reliability:

“UST’s price falling below its $1.00 ‘peg’ and not quickly being restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no reserve of assets or any other backing.”

The SEC also claimed several of the tokens involved in the collapse of Terra were “crypto asset securities” falling under its regulatory purview. According to the SEC, these tokens included UST, LUNA and wrapped LUNA, as well as MIR tokens and mAssets developed under Terra’s Mirror Protocol.

“Defendants solicited investors for these crypto assets by touting their profit potential,” said the SEC. “Defendants repeatedly stated that the crypto assets would increase in value based on Terraform’s development, maintenance, and promotion of its blockchain, protocols, and the entire Terraform ecosystem.”

Terra’s business connections were also a target of the financial regulator, as the SEC reported Chai — a South Korean payment app linked to Terra at the time — “did not process or settle transactions on the Terraform blockchain.” Rather, Terra allegedly reported transactions “that had already happened in the real world using Korean Won” while claiming to the public that Chai transacted on the blockchain.

“In at least five instances between October 2021 and March 2022, there were one or more days when no transactions whatsoever were confirmed on the Terraform blockchain,” said the SEC. “Yet, there is no evidence that the Chai payment application was not functioning during those periods.”

The SEC has charged Do Kwon with fraud - and their charges include how he lied about the Terra-Chai relationship.

In October, I grilled him on faking the Chai transaction data as well.

Full interview here: https://t.co/xZyRGFBYnh pic.twitter.com/iQ4XT8q7X7
— Laura Shin (@laurashin) February 17, 2023

Kwon has continued to be active on his Twitter account following the collapse of Terra despite many crypto users blaming him for their loss of funds and the seeming “ripple event” leading to multiple bankruptcies amid the crypto crash of 2022. South Korean authorities reportedly sent two officials to Serbia in an attempt to track down the Terra co-founder. At the time of publication, Kwon’s location i unknown.

SEC Charges Do Kwon With Offering Unregistered Securities

February 17, 2023 The Crypto Briefing

Stablecoin issuer Paxos reportedly probed by New York regulators

February 10, 2023 Coin Telegraph

BitLicense

While the exact reason for the investigation hasn’t been revealed, it has been reported that the New York regulator plans on upping its efforts to protect consumers this year.

Paxos Trust Company — the New York-based stablecoin issuer behind Binance USD (BUSD) and Paxos Dollar (USDP) — is reportedly being investigated by the New York Department of Financial Services (NYDFS).

A “person familiar with the matter” told Bloomberg in a Feb. 10 report that the exact motive behind the probe is currently unclear.

An NYDFS spokesperson declined to comment on ongoing investigations but noted that the department is broadly working to protect consumers from risks associated with investing in the cryptocurrency market:

“The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”

Paxos has issued BUSD — a U.S. Dollar-collateralized stablecoin — since the firm struck a partnership with Binance in September 2019. It is the third largest stablecoin, with a market cap currently exceeding $16 billion.

It is also the creator of the Paxos Dollar (USDP) which was launched in 2018. Today it is the sixth largest stablecoin with a market cap of about $875 billion, according to CoinGecko, and is the founder of PAX Gold (PAXG), a gold-backed-Ethereum token.

The company is also behind digital asset exchange itBit, which it launched in 2012 alongside the founding of Paxos.

The NYDFS issued Paxos with “BitLicense” in 2015, which legally permits companies to conduct digital currency-related activities in the state of New York.

Paxos recently refuted rumors that the U.S. Office of the Comptroller of the Currency (OCC) may order Paxos to withdraw its application for its full banking charter, despite the firm only receiving a preliminary approval in April, 2021.

To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.
— Paxos (@PaxosGlobal) February 8, 2023

Paxos also claims on its website that its BUSD and USDP token reserves are backed wholly in U.S. Dollars and U.S.Treasuries.

If reports of the investigation are true, it wouldn’t be the first one initiated by the NYDFS over the last year.

Coinbase Global U.S. reached a $100 million settlement with the New York regulator on Jan. 4 after they found that they failed to look over about 100,000 suspicious transactions from customers who opened accounts without sufficient background checks.

Shortly after Terra LUNA ecosystem and its failed algorithmic stablecoin TerraClassicUSD (USTC) collapsed in May, 2022, the NYDFS published stablecoin guidance report to ensure stablecoin issuers fully back their assets and attest regularly.

Cointelegraph reached out to Paxos and Binance to comment on the matter but did not receive an immediate response.

Hunt for Do Kwon Intensifies As South Korean Authorities Work With Serbian Officials: Report

February 9, 2023 The Daily Hodl

Tether CTO Paolo Ardoino on taking the bull by the horn

February 2, 2023 Coin Telegraph

Coin Telegraph

Stablecoins may have suffered an identity crisis in 2022, but Tether chief technology officer Paolo Ardoino is bullish about the utility the sector provides.

Stablecoins have been under much scrutiny since the implosion of the third-largest stablecoin by market cap, TerraUSD (UST), in May 2022. The UST saga led to a lot of skepticism that caused consumers to question the safety of stablecoins.

In the seventh episode of Hashing It Out, Cointelegraph’s Elisha Owusu Akyaw (GhCryptoGuy) interviews Paolo Ardoino, Tether’s chief technology officer, about how stablecoins work, and the two discuss frequently asked questions about stable tokens.

Fear, uncertainty and doubt (FUD) rocked the boats of stablecoin issuers after TerraUSD depegged in 2022. Tether was one such issuer at the receiving end of the FUD. Ardoino claimed that some of the FUD was being spread privately and publicly by competitors. Nevertheless, the Tether chief technology officer said that the FUD only served to improve trust between consumers and the company.

“I like the FUD so much because we can respond to it with facts.”

One such fact was the ability of the company to withstand the pressure that came as a result of panic in the market. Ardoino pointed out that Tether was able to process $7 billion in redemptions in 48 hours, which was 10% of the company’s reserves. According to him, it was an achievement that will be recorded in the history books of global finance.

On how to ensure that the industry does not again end up in a situation similar to what happened with TerraUSD, Ardoino argued that developers should stick to making stablecoins the traditional way and avoid the more experimental algorithm-based method. He believes that algorithmic stablecoins are inefficient and unsafe.

Furthermore, Ardoino mentioned that algorithmic stablecoins might work only in instances where the stablecoin is heavily collateralized with more proven cryptocurrencies like Bitcoin (BTC) instead of cryptocurrencies issued by the same developers building the stablecoin.

“The problem with Terra was that their backing was a token they also created. Tether’s backing is the U.S. treasury bills, is the U.S. economy, so you cannot have traders attacking us because we have all the reserves.”

In the episode, the two also discuss:

How stablecoins work
Algorithmic stablecoins vs. traditional stablecoins
The TerraUSD deppeging saga
Use cases of stablecoins in developing economies
Tether Peso and Tether Gold
“Stablecoins war”: Tether (USDT) vs. USD Coin (USDC) vs. Binance USD (BUSD)
Stablecoin regulation
Central bank digital currencies vs. stablecoins

Listen to the full episode on Spotify, Apple Podcasts, Google Podcasts, or TuneIn to get all the insights on stablecoins and Tether. You can also check out Cointelegraph’s catalog of shows on the new Cointelegraph Podcasts page.

Terra lending protocol Mars to launch mainnet

January 22, 2023 Coin Telegraph

Coin Telegraph

The Mars Hub will launch an independent Cosmos application chain and issue MARS to users who hold the token during the two snapshots on Terra Classic.

The original Terra lending protocol, Mars Hub, announced the launch of its independent Cosmos application chain on Jan. 31, along with the issue of MARS tokens to users who hold it during the two snapshots on Terra Classic.

According to a statement on Jan. 20, the Mars Hub mainnet will go live with 16 genesis validators, including Block Pane, Chill Validation, Chorus One, Cosmology, CryptoCrew Validators, ECO Stake, among others. An additional 34 slots for permissionless validators will be available post-launch.

On January 31, Mars Hub Mainnet will go live.

- $MARS Airdrop.
- Red Bank and Credit Accounts on @osmosiszone. pic.twitter.com/mfWxCsaoXo
— Expedition | Mars Protocol ️ (@ExpeditionMars) January 20, 2023

A total of 50 million MARS tokens will be delegated to genesis validators for the launch, and returned to the community pool one month later. "This temporary delegation will help protect the network from attack by a rogue validator that could potentially accumulate a large delegation of MARS shortly after genesis and begin manipulating transactions on-chain," notes the statement.

The mainnet debut is the third and last phase of a three steps process that began with a private testnet for developers and some community members, followed by a public testnet. The first Mars outpost will follow on the Osmosis blockchain in early February 2023.

MARS tokens will be made claimable by eligible addresses via an airdrop that goes live with the mainnet, unlocking 64.4 million tokens for those who held MARS during the two historical snapshots on Terra Classic. A snapshot is a file with the recording state of a blockchain at a particular time, including all existing address and transactions data.

MARS tokens distribution was determined by snapshots taken before and after the depeg of Terra Class USD (UST) - block 7544910 (May 7, 2022, ~11 a.m. EST), and block 7816580 (May 28, 2022, ~11 a.m. EST).

The tokens will be available from six months after the launch via Station, Terra's new interchain wallet. Users who held MARS on Terra Classic will also inherit governance power.

In May 2022, the collapse of Terra LUNA and its stablecoin TerraUSD (UST) had a wide impact on crypto markets, hammering token's prices of decentralized finance (DeFi) projects hosted on the Terra protocol, such as Mars Protocol.

Defi Lending Sector Experiences Major Shake-Up: 71% of Total Value Locked Evaporates in 12 Months

January 17, 2023 Bitcoin.com

Albright Capital drops lawsuit against Terraform Labs and Do Kwon

January 10, 2023 Coin Telegraph

Coin Telegraph

Terraform Labs is the founder of US Dollar Terra (UST), an algorithmic stablecoin that lost its peg in May 2022.

Albright Capital has dropped its lawsuit against Terraform Labs and its founder Do Kwon, according to a Notice of Voluntary Dismissal filed in U.S. District Court on January 9. Before its dismissal, the lawsuit had alleged that the company had violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by operating the stablecoin, UST, as a “Ponzi scheme.”

Three Arrows Capital (3AC) Co-Founder Su Zhu posted the dismissal to Twitter, saying:

Curious how long it will take cryptonative media to report on this sudden voluntary dismissal of class action against Luna foundation and Luna investors pic.twitter.com/8SyMhB4u4g
— Zhu Su (@zhusu) January 10, 2023

Su Zhu had previously claimed that the bankruptcy of 3AC was partially caused by UST’s collapse. The lawsuit was dismissed “without prejudice,” meaning that the plaintiff has the option to refile it in the future if desired.

US Dollar Terra (UST) was an algorithmic stablecoin created by Terraform labs. It ran on the Terra network, whose native coin was LUNA. UST was backed by an equivalent dollar amount of LUNA as collateral, and each UST coin was supposed to be pegged to $1 on the secondary market. However, LUNA collapsed in value in May, 2022, causing UST to become undercollateralized. UST lost its peg as a result and is now worth only $0.02 per coin.

South Korean authorities issued an arrest warrant for Terra network’s founder Do Kwon in September, and the company has faced multiple lawsuits alleging that UST was a fraud. This particular lawsuit alleged that UST “amounted to a Ponzi scheme that was only sustained by the demand for UST created by Anchor’s excessive yields.” However, the lawsuit has now been dismissed by the plaintiff.

Terra accidental airdrop leads to smear campaign, community member claims

January 10, 2023 Coin Telegraph

Coin Telegraph

TFL claimed that the airdrop receiver refused to return the funds, while the user claimed that he was on the verge of settlement with the firm when the former decided to run a smear campaign.

Terraform Labs (TFL), the firm behind the defunct algorithmic stablecoin TerraUST (USTC), and its co-founder Do Kwon is back in the limelight again for allegedly running a smear campaign and issuing threats against one of their own community members.

It all started in the month of May with the genesis airdrop that was planned after the original ecosystem imploded in the wake of its stablecoin depeg. TFL, in a Twitter thread, claimed that Jimmy Le, a community member entrusted with Terra community funds, has refused to return funds gained during the genesis airdrop.

The thread noted that the newly minted token, now called LUNA, was airdropped to individuals holding the original native token (now called) LUNAC. However, an error with regard to CW3 multi-sig wallets resulted in individual signers of these multi-sigs receiving LUNA airdrops, which they should not have.

TFL claimed that all other multisig singers returned the accidental airdrop except for Jimmy and despite their best efforts, he is yet to cooperate with them.

5/ All Ozone and Interchain Incentives multi-sig signers have since returned 100% of the $LUNA they received in the Genesis airdrop where technically possible -- except for Jimmy.
— Terra Powered by LUNA (@terra_money) January 5, 2023

Jimmy, the individual accused of not returning the accidental airdrop, responded to the TFL tweet thread on Jan. 9 and accused them of running a smear campaign against him. He said the firm has deliberately chosen to present one side of the story and has also lied about their interactions. He claimed that at no point he refused to return the accidental airdrop but wanted to make sure about the tax implications because of the tokens he had received.

He also clarified that he transferred the liquid portion of the airdrop (around $1 to 1.5 million) to the multisig TFL specified, and none of the airdropped tokens has ever been undelegated or sold. But later, he found out that the chain upgrade did not reset his vesting balances to the community pool but rather enabled the manual transfer of vesting tokens to the community pool. This made him revisit his tax concerns again.

On August 1, 2022, I discovered that the chain upgrade did not reset my vesting balances to the community pool, but rather enabled a feature that enabled manual transfer of vesting tokens to the community pool. pic.twitter.com/mlXjUQGW7N
— jimmy (@stablejim) January 9, 2023

Jimmy claimed that tax-related conversations with the TFL continued until December 2022 before TFL suddenly posted the Twitter thread on Jan. 6. He claimed that the smear campaign caught him off guard as they were in the process of a settlement.

I was caught off guard by TFL's sudden public post because we were in the process of reaching an agreement. Since then, I have received threats of law enforcement action and threats to my personal safety, which has been very shocking and distressing to me. pic.twitter.com/DvYwQk5EUZ
— jimmy (@stablejim) January 9, 2023

He also allegedly shared personal messages from TFL co-founder Kwon threatening him with various consequences, including personal safety. One of the messages read:

"Just make it right, it's not worth the hassle and endangerment this will bring to your life and/or reputation going forward. That's all I'm gonna say anymore on the subject. I will NOT be involved in hunting you down btw. I don't care that much. Just thought I'd give u heads up. Good luck. You'll prob need lots of it if you try to abscond."

The clarification from Jimmy and the alleged messages from Kwon riled up the crypto community, especially Fatman, a Twitter handle dedicated to the Terra-LUNA fiasco.

Fatman lauded Jimmy and took a potshot at Kwon, saying that someone who tried illegally selling US securities and is on the run from Interpol should not threaten others for getting legal and tax advice. He added further, "don't take financial advice from Do Kwon. It's always the right play."

Cointelegraph reached out to TFL, Do Kwon and Jimmy Le to get more clarification on the issue but didn't get a response at the press time.

Terra

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