U.S. District Judge Jed Rakoff has granted the Securities and Exchange Commission (SEC) to engage the South Korean government’s cooperation in questioning Daniel Shin, the co-founder of Terraform Labs, and in gathering evidence from Chai Corp., a payments company.
This decision marks a significant development in the SEC’s case against Terraform Labs and its ex-CEO, Do Kwon, concerning an alleged illicit scheme that led to the loss of about $40 billion in cryptocurrency value.
SEC to interrogate Terraform Labs co-founder in South Korea
The SEC’s legal motion, approved on August 16, paves the way for the regulatory agency to probe Shin and obtain documents from Chai Corp. to substantiate its case. The inquiry will focus on how Chai processed payments, its utilization of Terraform’s blockchain and stablecoin, and the nature of communications between the two firms.
Shin and Kwon initially co-founded the company that later became Chai, sharing office space and personnel with Terraform. However, the two entities separated in 2020, leading to Kwon’s appointment as Terraform’s CEO and Shin’s continuation as Chai’s CEO. While Shin faced charges in South Korea in April, Kwon is presently incarcerated in Montenegro for using a counterfeit passport.
Legal challenges mount for Terraform Labs
In February, the SEC initiated legal action against Terraform Labs and Kwon, accusing them of creating fraudulent cryptocurrencies TerraClassicUSD (USTC) and Terra Luna Classic (LUNC). The SEC further alleged that Kwon and Terraform dishonestly promoted Chai’s use of the Terra blockchain for transaction processing and settlement, even fabricating transactions of the Korean won-pegged stablecoin TerraKRW (KRT) to create the illusion of Chai’s blockchain usage.
South Korean authorities charged Shin with several counts of fraud in April, accusing him of concealing the investment risks associated with Terraform’s cryptocurrencies.
In addition to the SEC’s lawsuit, Kwon faces criminal prosecution in both the United States and South Korea, with extradition requests pending from both nations. The recent ruling allowing the SEC to seek South Korea’s assistance in questioning Shin and collecting evidence from Chai Corp. adds a new layer to Terraform Labs’ legal complexities.
The focus on the relationship between Terraform and Chai, coupled with the serious allegations of fraudulent cryptocurrencies and deceptive transactions, underscores the intricate nature of this legal battle. The case continues to unfold in the U.S. District Court, Southern District of New York, under the designation Securities and Exchange Commission v. Terraform Labs Pte., 23-cv-01346.
