Terra’s Do Kwon Investigated for Working a Ponzi: Report

Key Takeaways

  • Including to felony complaints from a gaggle of South Korean buyers, prosecutors are reportedly investigating Terraform Labs CEO Do Kwon on Ponzi expenses.
  • The prosecutors are scrutinizing whether or not Terraform Labs’ Anchor Protocol, which promised buyers fastened 20% curiosity on UST deposits, was a Ponzi scheme.
  • The investigation follows Terra’s $40 billion collapse final week.

South Korean prosecutors are reportedly weighing whether or not they may cost Do Kwon for working a Ponzi scheme by promising unsustainably excessive fastened rates of interest on UST  deposits by way of Anchor Protocol.

Prosecutors Investigating Do Kwon on Ponzi Prices

Do Kwon may very well be criminally charged for working a Ponzi scheme, South Korean information sources have reported. 

In accordance with a Friday report from Yonhap, South Korean prosecutors are actively investigating whether or not they may make extra Ponzi scheme expenses towards Terraform Labs CEO Do Kwon, including to the complaints already filed towards the entrepreneur over Terra’s dramatic implosion. A Ponzi scheme is a sort of funding fraud by which early buyers revenue from cash gathered from new buyers.

As Crypto Briefing reported, a gaggle of South Korean buyers filed a felony criticism towards Kwon and his co-founder Daniel Shin for fraud and different monetary violations Thursday over Terra’s collapse. Per the newest report from Yonhap, the Seoul Southern District Prosecutors Workplace answerable for the case has reportedly assigned its Monetary and Securities Crime Joint Investigation Group, dubbed the “Angels of Demise,” to analyze whether or not Kwon was working a Ponzi scheme by selling unsustainably steady yields on UST deposits by way of Anchor Protocol.

Right this moment, Kim Hyun-Kwon, a associate at LKB & Companions, a prime South Korean legislation agency representing the buyers suing Kwon, informed Yonhap that Anchor protocol was “unsustainable” and may very well be deemed a Ponzi scheme. “After reviewing the related legal guidelines, now we have judged that the [Anchor] protocol may be established as a Ponzi scheme,” he mentioned. “Whereas there could also be no authorized clause on stablecoins and bitcoins, there’s a judicial precedent we imagine may be utilized to this case.”

Yonhap additionally reported that an official from the prosecutors’ workplace mentioned that “Kwon’s remarks promising returns may present a key clue” for the case. 

Anchor Protocol is a Terra-native decentralized software constructed by Terraform Labs that sought to offer a hard and fast 20% rate of interest on UST deposits. It was designed to realize this by diverting the yield from the interest-bearing collateral posted by debtors towards the UST depositors or lenders. 

Nevertheless, when the hype across the crypto market started settling in late 2021 and cryptocurrency costs began trending decrease, Anchor’s fastened 20% curiosity grew to become unsustainable. As a substitute of decreasing the protocol’s yield charge, Terraform Labs stored the speed excessive by propping up Anchor’s UST reserves with $450 million from its personal treasury—cash that prosecutors may argue got here not directly from LUNA buyers.

In accordance with native reviews, Kwon has already left and moved most of his liquid property out of South Korea.

Disclaimer: On the time of writing, the writer of this piece owned ETH and several other different cryptocurrencies.

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