- SEC gains approval to question Terraform Labs co-founder Daniel Shin in South Korea.
- In-depth inquiry focuses on the relationship between Chai Corporation, Terraform Labs, and co-founder Do Kwon.
Probing the Intricacies of Terraform Labs
In a decisive move, the United States Securities and Exchange Commission (SEC) obtained the green light to extend its investigation arm into South Korea. The main objective: interrogate Daniel Shin, the co-founder of Terraform Labs, as part of the SEC’s intensifying scrutiny against both Terraform Labs and another co-founder, Do Kwon. District Judge Jed Rakoff, on Aug. 16, acceded to the SEC’s request dated July 10 to cross borders and delve into the intricate web woven between these entities.
Central to the SEC’s inquiries are probing questions about Shin’s peer, Do Kwon’s, specific role within Chai Corporation—a Seoul-based payments entity initiated by Shin himself. The overarching theme of these queries seeks clarity on how Chai integrated the Terra blockchain, the nature and depth of its association with Terraform, and the reasons leading to the parting of ways between Chai and Terraform. For context, Chai and Terraform were conceived as intertwined entities in 2019, both operating from shared spaces and leveraging joint resources, only to diverge in the subsequent year.
Amid these investigative ripples, both Terraform Labs and Kwon have chosen a non-confrontational stance. Rather than challenging the SEC’s motions, they have laid out their own set of queries and document requisitions, all while negating the SEC’s assertions.
Digging deeper, the backstory reveals a contentious relationship between the SEC and Terraform Labs. Earlier this year, the SEC lodged a lawsuit against Terraform and Kwon, leveling serious accusations of deception. Central to these charges is the SEC’s contention that Terraform and Kwon masterminded an intricate ruse, artificially inflating transactions of TerraKRW (KRT)—a stablecoin tethered to the Korean won. The purported objective: falsely project Chai’s extensive utilization of the blockchain.
This façade, as the SEC alleges, culminated in the catastrophic collapse of Terra’s cryptographic ecosystem in May 2022, erasing an astronomical $40 billion in value and dragging the broader crypto market into the quagmire.
Moreover, while this drama unfolds on an international stage, legal challenges continue to mount for those at the heart of Terraform Labs. South Korean prosecutors slapped Shin with numerous fraud charges, accusing him of concealing Terraform’s crypto investment risks. Meanwhile, Kwon faces his own legal battles, currently incarcerated in Montenegro due to passport-related misdemeanors. Concurrently, both the U.S. and South Korea are vying for Kwon’s extradition, compounding his legal woes.