U.S. Federal Agencies Investigating Terra/LUNA Collapse

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  • The FBI and DOJ are allegedly investigating the collapse of Terraform Labs
  • The Wall Street Journal says that Kwon is being investigated for his part in the platform’s operation
  • The investigation includes the extent to which payment platform Chai used the Terraform blockchain, if at all

The Federal Bureau of Investigation (FBI) and Department of Justice (DOJ) are allegedly investigating the collapse of the Terraform Labs company and its Terra USD and LUNA cryptocurrencies, according to the Wall Street Journal. The outlet reported this week that two agencies are probing the collapsed company and its operations, increasing the likelihood of further charges against Do Kwon in addition to those he already faces from Korean and U.S. entities.

Federal Investigators Speaking to Former Terraform Employees

According to insiders the newspaper has spoken to, Kwon is facing potential U.S. criminal charges as the DOJ investigates last year’s collapse of the stablecoin, while the FBI and the Southern District of New York (SDNY) have been interviewing former Terraform Labs team members, with the intention of speaking to others. As the Journal notes, The SDNY often leads high-profile financial crime prosecutions.

The Securities and Exchange Commission (SEC) filed a civil fraud lawsuit against Kwon and Terraform Labs last month, alleging they misled investors about the risks of TerraUSD, which lost its $1 peg in May 2022 and caused $40 billion in market value losses, wiping out some investors’ life savings. These charges came after the Seoul Southern District Prosecutor’s Office’s Financial and Securities Crime Unit issued the arrest warrants against Terra executives residing in Singapore, including founding members Kwon and Nicholas Platias, following allegations of financial crimes.

Terraform Blockchain Usage Examined

The Journal also claims that the DOJ’s investigation into the collapse of the TerraUSD stablecoin overlaps with the SEC lawsuit, with the relationship between Chai, a South Korean payment app, and the blockchain developed by Terraform to power TerraUSD under the microscope. The SEC alleged that Kwon misled the public by falsely claiming that Chai transactions were processed on Terraform’s blockchain, when in reality Chai used conventional technology.

Chai confirmed in 2021 that it was no longer utilizing Terraform’s blockchain technology or digital assets for payments, and the SEC alleges that Kwon’s fraudulent claims of real-world usage deceived investors into purchasing Terraform’s cryptocurrencies.