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SEC Begins Probe Into Terraform Labs; Appeals Court Requires Do Kwon to Comply With Subpoena

2 mins
Updated by Andrew Rossow
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In Brief

  • The Securities and Exchange Commission are looking into possible violations of federal investor-protection regulations in the marketing of TerraUSD stablecoin.
  • The SEC is reportedly analyzing over $80 million in money laundering.
  • Do Kwon claims there misinformation and falsehood.
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On Thursday, the U.S. Court of Appeals for the Second Circuit ruled that Terraform Labs CEO Do Kwon must comply with a subpoena served by the SEC back in September.

The SEC is reportedly investigating last month’s Terra-led market meltdown, brewing additional troubles for Do Kwon and his co-founders.

Sources told Bloomberg that the U.S. agency will probe if there were violations of federal investor-protection regulations in the marketing of TerraUSD stablecoin before the massive market havoc. This would call probe to check if other rules around securities and investment products have been violated, including suspicions of money laundering by the CEO Kwon.

Reports claim SEC has money laundering evidence

With new allegations of money laundering against Do Kwon, SEC is reportedly looking at a figure of around $80 million as evidence. Reports claim that the money outflowed as the company’s monthly operating expenses in many crypto wallets a few months before the collapse.

Internal statements with the local reporters claim the SEC stated that “the funds flowed into dozens of cryptocurrency wallets.”

While anonymous sources to some media outlets also allege that Kwon did not officially receive any remuneration from Terra.

In addition, local reports claim that the SEC recently conducted a video interrogation of some of Terra’s key designers. JTBC reporters claim that the key designers predicted the collapse of Terra and Luna before it actually occurred, with nothing done to avoid the debacle.

“We are not aware of any SEC probes into TerraUSD at this time – we’ve received no such communication from the SEC and are aware of no new investigation outside of that involving Mirror Protocol,” Terraform Labs previously stated.

The Mirror is a Defi protocol on Terra that replicated the performance of stocks while using UST as the stable collateral.

Do Kwon dismisses most chatter as “misinformation”

Meanwhile, Do Kwon recently took to Twitter to state that “we will soon be more proactive in communicating with the press & getting the right information out there.” After maintaining silence for quite some time, the co-founder remarked that “there’s a lot of misinformation and falsehood out there,”

Meanwhile, South Korean authorities have already undertaken a formal investigation into Terraform Labs, with several class-action criminal lawsuits against co-founders Do Kwon and Daniel Shin demanding property confiscation for alleged ‘fraud.’

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Shraddha Sharma
Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.