Terra Founder Do Kwon Pulled $100M Out of Price Protection Fund, SEC Alleges
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Terra Founder Do Kwon Pulled $100M Out of Price Protection Fund, SEC Alleges

3 Minuten
1 year ago

The Securities and Exchange Commission has accused Kwon of yanking 10,000 Bitcoins out of Terraform and Luna Foundation Guard funds shortly after the stablecoin's collapse.

Terra Founder Do Kwon Pulled $100M Out of Price Protection Fund, SEC Alleges


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Terraform Labs co-founder and CEO Do Kwon pulled more than 10,000 BTC out of the project's dollar-peg protection fund and has been cashing it in ever since, the Securities and Exchange Commission said in a new lawsuit.

Buried almost 50 pages deep in the filing accusing the developer of securities fraud is an allegation of a more direct form of malfeasance: pulling $100 million out of what is left of the UST/LUNA ecosystem's fund via a Swiss bank.

In May 2022, UST and LUNA both collapsed in a disaster that cost investors at least $40 billion and has been raging through the crypto economy ever since. It led directly to a string of bankruptcies at crypto lenders like Voyager Digital and indirectly — via the trading losses it caused Sam Bankman-Fried's Alameda Research — to the collapse of his FTX empire.

At that time, Terraform and Kwon pulled about $250 million out of the fund that was supposed to protect the UST peg and transferred it to a private cold wallet, the SEC said.

Kwon, who is wanted by South Korean authorities and has an Interpol Red Notice, is believed to be hiding out in Serbia. That hasn't stopped him from continuing to profit from the proceeds of Terra/LUNA, the SEC said. It alleged:

"On a periodic basis since May, Terraform and Kwon have transferred — and continue to transfer — Bitcoin from this wallet to a financial institution in Switzerland and have converted the Bitcoin to cash. Between June 2022 and the date of this complaint [Feb. 16], over $100 million in fiat currency has been withdrawn from that Swiss bank."
Back in June, Kwon called private allegations that he'd pulled $2.7 billion out of the Terra/LUNA ecosystem, "categorically false." One Twitter sleuth had said Kwon had been secretly cashing out $80 million a month for three years.

Not Very Humble

For a while, the algorithmic stablecoin model Kwon championed had been hugely successful. The UST market capitalization grew from less than $3 billion in November 2021 to more than $18 billion on May 8. A few weeks later it was nearly valueless.

During that heyday, Kwon had earned a reputation for arrogance when it came to personal wealth while the Terra/LUNA ecosystem was still functioning to maintain the dollar peg of UST.

When a well-regarded economist suggest that "self correction mechanisms" like the DAO-controlled arbitrage mechanism between UST and LUNA  "do not work when panicking humans are stampeding for the exit," Kwon tweeted:

"I don't debate the poor on Twitter, and sorry I don't have any change on me for her at the moment."

The SEC has alleged that, in addition to UST and LUNA being unregistered securities, Terraform Labs had secretly propped up the value of UST repeatedly through human market making, without revealing the failure of the DAO's arbitrage algorithm.

"The Terraform ecosystem was neither decentralized, nor finance," said Gurbir Grewal, director of the SEC's Division of Enforcement. "It was simply a fraud propped up by a so-called algorithmic 'stablecoin' — the price of which was controlled by the defendants, not any code."

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