DOJ Investigating TerraUSD Over Stablecoin Collapse: WSJ

The Department of Justice, like the SEC in recent weeks, alleges Do Kwon and Terraform Labs misled investors about the risks of TerraUSD

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Source: Shutterstock / CHRISTOPHER E ZIMMER, modified by Blockworks

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The US Justice Department is reportedly investigating the demise of stablecoin TerraUSD (UST), adding to the possibility of criminal charges for stablecoin creator Do Kwon.

The stablecoin’s collapse last year resulted in billions of dollars in losses for investors.

The department’s probe follows the Securities and Exchange Commission’s (SEC) recent civil fraud lawsuit against Kwon and his company, Singapore-based Terraform Labs, the Wall Street Journal reported Monday.

The Department of Justice did not immediately return a request for comment.

Both the SEC and the Justice Department allege Kwon and Terraform Labs misled investors about the risks of the stablecoin. 

Neither Terraform labs, nor Kwon, could immediately be reached.

The SEC lawsuit accuses Kwon and Terraform Labs of deceiving the public by claiming that the South Korean payment app, Chai, was using Terraform’s blockchain to process transactions when it was not.

The Justice Department’s investigation is said to cover similar ground, with investigators reportedly looking into the relationship between Chai and Terraform’s blockchain technology.

Adding to mounting regulatory scrutiny, the Federal Bureau of Investigation (FBI) and the Southern District of New York have also been questioning former members of Kwon’s team and are seeking to interview others in connection with the case.

TerraUSD was designed to maintain a price of $1, but it lost its peg in May 2022, leading to a series of events that wiped out roughly $40 billion in market value.

Kwon, who is a South Korean national, has denied any wrongdoing and has said he too lost money when TerraUSD collapsed. 

It is not clear what specific charges the US Justice Department is pursuing, and prosecutors could potentially drop the investigation without filing charges, according to the report.

This is not the first investigation to be launched into the collapse of TerraUSD. Prosecutors in South Korea obtained an arrest warrant for Kwon last year and Singapore police have also said that they are investigating Terraform Labs. 

Kwon left Singapore in September 2022 and has reportedly been traveling since then. He has denied that he is on the run and has cited security concerns as the reason for not disclosing his location.


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