The US Justice Department is investigating the collapsed algorithmic stablecoin TerraUSD, thus raising the possibility of criminal charges against Terraform Labs and its CEO, Do Kwon, who were already indicted for civil fraud in the country.
TerraForm Labs Faces Criminal Investigation in the US
As the Wall Street Journal reported on Monday, the Federal Bureau of Investigation (FBI) and the prosecutors from the Southern District of New York (SDNY) are involved in the investigation. They have interviewed former employees of Terraform Labs and are seeking to question others.
None of the agencies officially confirmed the criminal investigation against the collapsed stablecoin issuer. While there are chances of criminal charges following such investigations, the prosecutors can potentially scrap the probe.
Civil Lawsuit against Terraform Labs
Terraform Labs’ algorithmic stablecoin, pegged to 1-to-1 with USD, collapsed last year, sliding almost to zero. In addition, it resulted in a wave of bankruptcies of crypto companies exposed to the project.
Earlier, the Securities and Exchange Commission (SEC) accused Terraform and Kwon of orchestrating and operating a fraudulent scheme from April 2018 until the project’s collapse in May 2022. The lawsuit alleged that the Singapore-based project raised billions of dollars from investors globally by selling a suite of interconnected crypto asset securities, many of which can be categorized as unregistered securities.
The securities regulator’s lawsuit alleged Kwon misled investors in the company by claiming that the value of the company’s cryptocurrency would rise. Further, he falsely claimed that the Soth Korean payments app Chai is using Terraform Labs’ blockchain infrastructure to settle transactions, whereas the startup confirmed in 2021 that it is no longer using Terraform’s blockchain technology or digital assets to process its payments.
The latest report outlined that the investigation of the Justice Department is on a similar track to the charges brought by the US security regulator.
Meanwhile, the actions of the US prosecutors and regulators against TerraForm Labs and Kwon are among a string of investigations and charges they are facing globally. South Korea already issued an arrest warrant against Kwon and has obtained a red notice against him from Interpool, thus putting global law enforcement on the lookout for him. On top of that, Singapore police confirmed their ongoing probe against the collapsed stablecoin project.
Meanwhile, the current whereabouts of Kwon are not known after his disappearance from public view last year. According to the South Korean authorities, he left Singapore last September and reached Serbia with a stopover in Dubai.
Kwon last appeared in an interview with crypto journalist Laura Shin in October and denied that he was on the run. However, he also didn’t disclose his location at the time, citing safety.