A Swiss bank aided crypto fugitive Do Kwon and the firm he co-founded in transferring more than 10,000 Bitcoin out of their failed project and converting some of the tokens to cash, the Securities & Exchange Commission (SEC) alleges.
The SEC filed a lawsuit accusing Kwon and his firm, Terraform Labs Pte, of fraud, resulting in losses of at least $40 billion. Kwon developed the TerraUSD stablecoin, which was meant to have a constant $1 value. He created a complex mix of algorithms and trader incentives involving a sister token, Luna, to achieve the stablecoin’s value. The scheme fell apart in May 2022, worsening a $2 trillion crypto-market rout and causing several digital-asset outfits to fail.
Kwon and Terraform Labs transferred the 10,000 Bitcoin out of their cold wallet, which is not connected to any digital-asset exchange. The two have been regularly moving the cryptocurrency out of the wallet since May last year. The SEC did not reveal the identity of the financial institution that accepted the funds.
According to the complaint, Kwon and his co-conspirators converted the Bitcoin to cash, and since June 2022, more than $100 million in fiat currency has been withdrawn from the Swiss bank.
South Korea has issued a warrant for Kwon’s arrest on charges including violating capital markets laws. The country has requested Interpol to issue a red notice against Kwon, who has been hiding since the charges were filed.
The SEC is requesting that Kwon and his firm disgorge their ill-gotten gains and pay fines.
Allegations of Fraud
The lawsuit alleges that Kwon and his co-conspirators defrauded investors in the TerraUSD stablecoin. The SEC claims that Kwon and his co-conspirators concealed that TerraUSD’s value was based on Luna tokens’ price and an algorithm, instead of a US dollar reserve, which Kwon had promised.
Kwon claimed that the algorithm would balance the stablecoin’s price and maintain its value at $1. However, the algorithm failed to stabilize the value of TerraUSD.
Kwon’s fraud led to a significant loss for Terraform Labs’s investors, as the value of Luna tokens dropped by 96%. Luna tokens were vital to the stablecoin’s value, and the sudden loss in their value made TerraUSD worthless.
Terraform Labs is also accused of using TerraUSD to incentivize investors to purchase Luna tokens. The company promised investors an 8% return on their investment in Luna tokens if they used TerraUSD to purchase them. The SEC alleges that Terraform Labs used this tactic to inflate Luna token prices.
The Swiss Bank’s Role
The SEC claims that the Swiss bank helped Kwon and Terraform Labs convert their Bitcoin to cash. The agency is investigating whether the bank knew that the funds were the proceeds of illegal activity.
The bank has not commented on the allegations. If found guilty, the bank could face charges and a significant fine.
Do Kwon’s Whereabouts
Kwon has been on the run since South Korea issued a warrant for his arrest. South Korean officials believe that he is hiding in Europe and have requested the help of Interpol in tracking him down.
Kwon’s case highlights the challenges of prosecuting crimes in the crypto space. Cryptocurrency transactions are often anonymous, making it difficult to track illegal activity.
