The United States Securities and Exchange Commission (SEC) has doubled its investigation efforts on Terraform Labs by teaming up with the South Korean government to gather more evidence into Terraform Labs’ operations. 

Terraform Labs, the company behind Terra blockchain and Terra USD stablecoin has been under scrutiny after investigations of its collapse revealed crypto market manipulation and fraudulent transactions. 

Given the breadth of the case, the SEC has been granted a motion by District Judge Jed Rakoff to join forces with South Korea to probe further into Terraform Labs and question Daniel Shin, Terraform Labs’ Co-founder. 

The decision to align with South Korea follows a recent report by Bloomberg which highlighted the SEC’s intention to gather valuable evidence from Chai Corp, a South Korean financial services company owned by Shin. 

Shin founded Chai Corp in early 2019 and has been in a mutual relationship with Terraform Labs for some time, sharing resources, data, and other facilities. But interestingly, the two organizations terminated their relationship in 2020, and the reason for this dissociation has become an important part of the SEC’s investigations. 

In 2022, the SEC filed a lawsuit against Terra and former CEO and Co-founder of Terraform Labs, Kwon Do-Hyung. The regulator alleged that the Terra collapse was aggravated by Do Kwon and not market fluctuations. Apparently, Do Kwon ran an illegal crypto scheme that led to a $40 billion loss of cryptocurrency assets. 

Terraform Labs, on its own, has denied all forms of misconduct in its cryptocurrency operations. However, Shin still faces multiple fraud charges, accusing him of being aware of Terraform’s schemes and hiding the risks of investing in the failed cryptocurrency platform. 

In September 2022, South Korean Regulators issued an arrest warrant for Do Kwon after his whereabouts were unconfirmed. The former Terra Labs founder had claimed he was not in hiding whilst no one could identify his location at the time for over six months. 

However, in 2023, Montenegro’s interior minister, Filip Adzic, reported that Do Kwon was traveling under a false identity using falsified documents. Following confirmation of his location, Do Kwon was arrested and jailed for four months by the Montenegro court after being found guilty of traveling with fake documents. 

Do Kwon claimed that he was given the fake documents by a third party, which he declined to identify. Found in his possession were two Costa Rican passports, two identity cards, and two Belgian passports belonging to Do Kwon and a Terra Executive, Hang Chang-Joon, which were confiscated by the court as evidence. 

Currently, Do Kwon faces legal challenges from both South Korean and US prosecutors. As the investigation progresses, global regulatory bodies are working together to get to the bottom of the Terraform Labs rabbit hole.

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