South Korea Investigates Terra Debacle
South Korea’s law enforcement is investigating Terraform Labs and its employees. The charges cover manipulating markets and tax evasion.
Terraform Labs is the company responsible for the Terra blockchain ecosystem. In recent investigation rounds, there are accusations of siphoning Bitcoin from the company’s treasury. Local media outfits report that the Seoul Metropolitan Police Agency office obtained intelligence last month confirming the news.
The source of the intelligence is a Terraform employee. Police note that this investigation is unconnected with the troubles of co-founder Do Kwon. The executive is under investigation for personal embezzlement and is pleading innocence.
Authorities were able to freeze the stolen assets using help from a crypto exchange. While the amount of stolen funds is still not public knowledge, they’ll remain inaccessible to whoever helped themselves to it.
Terraform Labs set up a fund, Luna Foundation Guard (LFG) holding more than $3 billion in BTC reserves. Authorities took special interest in Luna after Terra collapsed in peculiar fashion. The Bitcoin fund was makeweight in balancing algorithmic stablecoin TerraUSD Classic (USTC). The firm is painting the suspicious idea that it exhausted its BTC war chest in an attempt to salvage USTC.
The True Story
So, what really happened?
Daniel Shin, Terraform Labs co-founder, vehemently rejected all allegations of fraud or malpractice in a recent interview with London’s Financial Times. According to him, “there was no intention of deception.” They only cared about innovating the payment settlement system using blockchain technology. A full-scale investigation continues with co-founders and employees preparing to tell it as they know it.
The initial investigation started in the second week of May after 81 investors filed two complaints collectively against the company for intentionally talking investors into supporting a flawed token.
The new president has tasked Grim Reapers of Yeouido, the country’s respected investigation, and prosecution experts, to work out the Terraform Labs puzzle. Then, the South Korean Conservative Party asked for a parliamentary hearing on the matter.
In closing out the month of May, authorities subpoenaed all Terraform Labs staff to determine any internal role in market manipulation. Authorities also requested that Interlinked crypto exchanges freeze funds linked with the fund.
A Good Day for the South Korean Taxman
On the matter of tax evasion, South Korea’s tax man has ordered Terraform Labs to pay $78 million in fines. This only became obvious after several investigations into the firm after its collapse.
Terra is a blockchain behemoth. An ecosystem worth no less than $40 billion is cause enough for legal tsunamis against the founders. As a result of this case, regulators around the world are having to rethink crypto regulation.
Japan has put forth new regulations, allowing only trust companies and banks to issue stablecoins, while South Korea now has a crypto oversight committee.
So far, only one unnamed employee has testified. They were involved in developing the initial design of the Terra blockchain. They also told prosecutors that the coin’s design was not universally accepted within the company.
After crashing in a sensational manner, UST’s value fell below 10 cents and has not offered as much as a flicker of hope. The current price is 3 cents, while its Luna token has lost almost all its value, managing to trade at a fraction of a cent.
In Terra We Trust: Terra 2.0
Terraform has attempted to revamp, launching Terra 2.0. UST is not part of the new blockchain, and instead of Luna tokens, there are now Luna Classic (LUNC) tokens.
Prosecutors are trying to establish that Do Kwon and other executives deliberately ignored UST’s design flaws. They’re also working on learning whether local crypto exchanges went through a proper listing review before listing UST or Luna.
The Financial Services Commission (FSC), Korea’s financial watchdog, has launched “emergency inspections” into local exchanges to ensure thorough investor protection.