South Korea’s Southern District Prosecutors raided Terraform Labs co-founder Daniel Shin’s home to investigate possible illegal activities.
The raid occurred on Wednesday, July 20, 2022, and included Shin’s Chai Corporation payment firm. Chai Corp. processes over $6 billion for over 2200 Asian merchants. Police also raided two other firms with connections to Terraform Labs, according to a spokesperson from the prosecutor’s office.
Kwon under intense investigation
The raid of Shin’s home was preceded by the raid of seven exchanges in South Korea, namely Bithumb, Upbit, Coinone, and four others, after 81 investors filed complaints in May 2022.
Five disgruntled investors baying for Kwon and Shin’s blood filed criminal complaints against the duo on May 19, 2022, followed by an additional 76 on May 27, citing cumulative damages of over $6 million. The investors accused Kwon and Shin of fraud and related financial crimes. These charges came 2-3 weeks after the collapse of the TerraUSD stablecoin due to the failure of an arbitrage mechanism designed to keep the coin at its $1 peg.
Investigators hope to scrutinize material from the raids before interrogating witnesses to determine whether Kwon orchestrated the collapse of TerraUSD. In June 2022, Korean prosecutors imposed a flight ban on employees of Terraform Labs until investigations were completed.
Shin told the Financial Times on June 9, 2022, that he and Kwon had no fraudulent intentions, nor were they aware of any flaws in the algorithm that helped TerraUSD maintain its peg through a sister coin, Luna.
Prosecutors are investigating whether they can assert that the Anchor Protocol, a kind of crypto bank at the heart of the TerraUSD business model that offered yields of almost 20%, was a Ponzi scheme.
Last month, prosecutors also looked into whether Shin’s co-founder Do Kwon evaded taxes by moving Terraform’s profits to an offshore account.
Where does Shin fit in?
Shin and Kwon founded Terraform labs in 2018 to introduce new innovations in payment settlement using blockchain technology. But the duo soon parted ways when it became clear that South Korean regulations were far behind the technology.
Shin stepped down from senior management and focused on Chai, handing the reins of Terraform Labs over to Kwon, who oversaw the launch of the Terra blockchain. Under Kwon’s watch, Terraform developed the TerraUSD/Luna ecosystem and the lending platform Anchor protocol, which lost investors over $40 billion in May 2022.
Since the implosion of the ecosystem, Shin has distanced himself from Kwon and Terraform Labs.
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