By Evan Spicer
Director of Cryptocurrency Investigations
MyChargeBack
There’s no doubt that 2022 was a volatile year for cryptocurrencies. The sudden collapse of the Terra blockchain, which featured the twin currencies Luna and TerraUSD, sent shockwaves through the crypto sector. There were suspicions from the beginning of the crisis that Luna’s collapse wasn’t just unfortunate–it might even have been connected to a crypto scam.
To add support to this suspicion, Do Kwon, owner of TerraForm Labs and co-founder of the Terra blockchain along with Daniel Shin, has been on the lam since the currencies collapsed in May of 2022. South Korea issued a warrant for Do Kwon’s arrest for his role in the Terra USD and Luna collapse and Interpol has been looking for him.
However, Do Kwon reportedly insists he’s not on the run, even though he refused to disclose his whereabouts. Like stash hidden on the blockchain, authors of crypto scams can be hidden when fraud comes to light.
SEC Charges–Why Terra USD and Luna Were Part of a Comprehensive Crypto Scam
The U.S. Securities and Exchange Commission (SEC) filed a complaint against Do Kwon and TerraForm in the federal court for the Southern District of New York in Manhattan. In connection with this complaint, it’s interesting to note that before the Terra USD and Luna crash, Do Kwon was cashing out $80 million monthly. The fall of the two currencies caused losses of a staggering $40 billion.
Like many other high-profile frauds, TerraFrom and Do Kwon talked a big game and relied on hype to artificially inflate the value of their assets. People could dismiss this as mere marketing. However, the complaint alleges that Do Kwon might have used manipulative practices and concealed vital information that caused investors to lose billions.
How Did the Luna and Terra USD Crypto Scam Work?
Luna was a cryptocurrency TerraForm released in 2018. In 2020, they unveiled the TerraUSD, sometimes known as UST, which was meant as a sister currency to the Luna that would be linked to the U.S. dollar.
Do Kwon then advertised an “interconnected suit” of crypto asset holdings that would mimic the performance of traditional equities. TerraUSD was touted as an “algorithmic stablecoin” that would be consistently pegged to the dollar and would also be yield-bearing. Based on nothing but hype, Do Kwon promised investors that they could expect a 20% interest on their investment.
However, as Luna became shaky, USDTerra had to break its peg to the dollar. The Terra ecosystem came tumbling down, partly because all its assets were interconnected and they had lost their connection to actual value – the dollar.
How is this Do Kwon’s fault? Why Were Luna and TerraUSD a Crypto Scam?
The SEC is charging Do Kwon for several reasons.
First, he failed to warn investors of the high level of risk. Basically, most investors had no idea that the USDTerra could lose its peg to the dollar or that the entire value could be wiped out if this happened.
Second, at earlier times, including once in 2021 when it was clear that USD Terra was about to become de-pegged from the U.S. dollar, Do Kwon propped up the value artificially by arranging purchases of the troubled currency.
Since he had more than a slight indication of what could happen in the future, the SEC holds Do Kwon responsible for not warning and preparing investors for what would happen. Also, his covering up of the early incident shows a degree of price manipulation.
Third, Do Kwon repeatedly guaranteed investors that USDTerra would increase in value and create double-digit returns when, given the earlier incident when the currency fell drastically, he had no basis to make such claims.
Fourth, Do Kwon misled investors by telling them that the South Korean payment platform Chai was making TerraForm platform payments. They would see activity with Chai, and feel reassured that business was going strong.
However, this was a ruse. TerraForm payments weren’t made through Chai. Instead, Do Kwon and his partners used the Chai platform to make it seem as if they were TerraForm transactions.
What Is The Difference Between a Failure and a Crypto Scam?
When we see stories of crypto coins and exchanges collapsing, we may notice that so many of them involve criminal charges. What is the difference between a simple failure – an honest mistake on a grand scale, and grand larceny, crypto-scam style?
One indication is transparency. Is the CEO hiding away somewhere? We don’t know where Do Kwon is. South Korean authorities seem to believe he is in Serbia. If this were an honest collapse, the SEO would be the first to want to sort things out and wouldn’t be hiding away.
Secondly, we don’t know where the money is. The funds are as hidden as Do Kwon. An honest company would file for bankruptcy if they found it difficult to fund client withdrawals in the case of a major collapse.
Third, Do Kwon violated numerous SEC regulations. After all, that is why the SEC is charging him. Pushing up an asset with hype even though there is solid evidence it could collapse quickly and soon, hiding information, manipulating the price, and executing fake transactions to give investors false hope are all against the SEC rules and any basic standard of decency.
Are you dealing with a crypto broker who doesn’t seem to be telling you the truth? Are they making excuses to avoid allowing you to withdraw your funds and yet keep pushing you to put more money into your account? That’s when it’s time to contact MyChargeBack.
MyChargeBack Will Investigate Your Crypto Case
If you have lost money on the blockchain through unregulated brokers, bitcoin wallet hacking, or fake merchants, talk to the MyChargeBack team. Our crypto investigations will provide evidence to bolster your claim.
MyChargeBack has developed working relationships with law enforcement agencies worldwide, has extensive knowledge and experience with crypto tracking, and can improve your prospects of getting your funds back.
