The US Securities and Exchange Commission (SEC) has been given the green light to team up with South Korea to investigate the Terraform Labs case. This case revolves around allegations against Daniel Shin and his partner Do Kwon, who co-founded Terraform Labs.
On August 16, District Judge Jed Rakoff approved the SEC’s request, which was made on July 10. The request aimed to allow the SEC to interview Daniel Shin, one of the Terraform Labs co-founders, and to gather documents from Chai Corporation. Chai Corporation is a payments company based in Seoul, founded by Shin.
The SEC wants to question Shin about Kwon’s involvement with Chai Corporation, how Chai used the Terra blockchain, and the details Chai provided about its connection with Terraform. Additionally, the SEC is looking into why Chai and Terraform parted ways. Chai and Terraform initially worked closely together, sharing resources and office space, before separating in 2020.
In February, the SEC filed a lawsuit against Terraform Labs and Kwon, alleging fraudulent activities related to their cryptocurrencies TerraClassicUSD (USTC) and Terra Luna Classic (LUNC), previously known as Terra (LUNA) and TerraUSD (UST).
The SEC claimed that Kwon and Terraform Labs misrepresented how Chai Corporation used the Terra blockchain for transactions and settlements. They were also accused of creating fake transactions involving TerraKRW (KRT), a stablecoin pegged to the Korean won, to make it seem like Chai was actively using the blockchain.
The collapse of Terra’s interconnected cryptocurrency ecosystem in May 2022 resulted in a loss of around $40 billion in value and had widespread effects on the broader cryptocurrency market.
In April, South Korean prosecutors brought multiple fraud charges against Daniel Shin, alleging that he hid investment risks associated with Terraform’s cryptocurrencies.
Meanwhile, Do Kwon is currently serving a four-month prison sentence in Montenegro for attempting to leave the country using a fake Costa Rican passport.
In addition to the SEC’s legal action, Kwon is facing criminal charges in both the United States and South Korea. Both countries have requested his extradition.