Entries related to Terra collapse

May 17, 2023

Former Fabric CFO accused of siphoning $35 million into his crypto startup and losing it all

Nevin Shetty, the former chief financial officer of the Fabric e-commerce platform, was federally indicted for wire fraud after allegedly misappropriating $35 million from Fabric to put into his cryptocurrency platform HighTower. Shetty stole the money in April 2022, shortly after being told he would be fired from Fabric for performance reasons.

According to the grand jury indictment, Shetty planned to put the funds into cryptocurrency positions that "could have yielded returns of 20 percent or more annually", and planned to return 6% to Fabric, keeping the difference. This so-called "investment" contradicted the conservative investment strategy that Shetty had helped to draft for Fabric, and he concealed both the existence of the transfer and his involvement with HighTower.

Shetty "lost virtually all of [Fabric's] money" "within a matter of weeks", at which point he fessed up to Fabric. Shetty had placed all of the funds into protocols based around the Terra stablecoin, which collapsed dramatically only a month later.

Shetty has pled not guilty, and has been released on bond.

March 23, 2023

US prosecutors file criminal charges against Do Kwon

Do Kwon (attribution)

Only hours after Do Kwon was arrested in Montenegro, federal prosecutors in New York filed eight criminal charges against him: conspiracy to defraud, conspiracy to defraud and engage in market manipulation, and two counts each of commodities fraud, securities fraud, and wire fraud. Prosecutors accuse Kwon of defrauding people by selling LUNA and UST (Terra) based on false claims about the technology, degree of adoption, and effectiveness of the algorithm intended to maintain Terra's stability.

The criminal charges out of the US add to civil charges he's facing from the SEC, as well as an investigation out of South Korea.

March 23, 2023

Terra/Luna founder Do Kwon arrested

Do Kwon (attribution)

The founder of Terra/Luna, the stablecoin that crashed dramatically in May 2022 and has subsequently been alleged to be a massive fraud, has been arrested in Montenegro.

After the collapse, Kwon became a fugitive. South Korea issued a warrant for his arrest in September, and Interpol issued a red notice. However, he's remained on the lam for some time, reportedly hiding in Serbia for a time — a country with no extradition agreement with South Korea.

Now, officials in Montenegro have announced they arrested Do Kwon, who was attempting to travel through the country using falsified documents. Montenegro is a Balkan country bordering Serbia.

"Do Kwon Arrested in Montenegro: Interior Minister", CoinDesk

February 16, 2023

SEC files fraud charges against fugitive Terra/Luna CEO, Do Kwon

Do Kwon (attribution)

The U.S. Securities and Exchange Commission filed charges against Terraform Labs and its CEO, Do Kwon, relating to the May 2022 collapse of the Terra/Luna projects. The complaint accuses Terraform and Kwon of offering unregistered securities and of fraud, and the SEC wrote in a press release that Kwon and the company "orchestrat[ed] a multi-billion dollar crypto asset securities fraud".

According to the SEC, Kwon "repeatedly misled and deceived investors" about the characteristics and stability of Terra and Luna, and tricked investors into believing that a popular Korean mobile payments platform used the Terra blockchain.

Kwon has been on the run from the law since Korean authorities filed a warrant for his arrest in September 2022. An Interpol red notice followed soon after. He is reportedly hiding out in Serbia, and Korean authorities reportedly traveled there in early February to hunt for him.

"SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes", United States Securities and Exchange Commission

October 5, 2022

South Korea reportedly freezes $39.6 million in crypto belonging to Terra founder Do Kwon, Kwon says it isn't his

South Korean prosecutors have reportedly frozen $39.6 million in crypto assets belonging to Do Kwon, the founder of Terraform Labs and creator of the failed Terra blockchain project. South Korea had also previously issued a warrant for his arrest.

Kwon claims that the report is a "falsehood", and "I don't know whose funds they've frozen". This joins his other claims, such as that he is "not 'on the run' or anything similar" (he is), and that Interpol didn't issue a red notice for him (they have).

"Terraform Labs founder Do Kwon refutes reports about his funds getting frozen", TechCrunch

September 14, 2022

South Korea issues arrest warrant for Terra founder Do Kwon

Do Kwon (attribution)

A South Korean court has issued a warrant for the arrest of Do Kwon, the founder of the Terra ecosystem, as well as five other people. According to Bloomberg the allegations include violations of Korea's capital markets law.

Kwon and the others named in the warrant are currently in Singapore. In June, Korea banned current and former Terraform Labs employees from leaving the country, and in July Korean authorities raided multiple exchanges in connection to their investigation.

September 9, 2022

Algorand Foundation discloses $35 million exposure to Hodlnaut

(attribution)

The Algorand Foundation is a group responsible for managing Algorand, a proof-of-stake blockchain. On September 9 they disclosed that they had put $35 million of the project's treasury into Hodlnaut, a lending firm that halted withdrawals on August 8 and applied for creditor protection a week later. Hodlnaut was in turn heavily exposed to Terra, the ecosystem that collapsed in May.

The Algorand Foundation reassured people that the funds potentially lost to Hodlnaut were less than 3% of the Foundation's assets, and "we do not anticipate operational or liquidity issues due to this action". They also wrote that they would be "pursuing all legal remedies to maximize asset recovery".

"Algorand Foundation exposure to Hodlnaut", Algorand Foundation

August 19, 2022

Hodlnaut seems to have lied about their Terra exposure

(attribution)

When Terra was collapsing in May, concerned users of the Hodlnaut lending platform asked whether the firm was exposed. CEO JT wrote on Twitter, "Hodlnaut as a firm did not take any losses on UST, users who held/bought UST on our platform did". Their social media manager wrote, "[Holdnaut] had 0 company exposure to [Anchor Protocol]", referring to the Terra-based lending protocol.

However, documents from the legal proceedings surrounding the now-underwater firm revealed that Hodlnaut had 317 million UST, which it liquidated at a loss when the previously dollar-pegged UST hit $0.85. In the filing, they wrote, "Due to the market's lack of liquidity, the average exit price of UST to USDC was around 42 cents on the dollar, resulting in realized losses to Hodlnaut Trading Ltd of about USD 189.7M. As a result, Hodlnaut's total debt to depositors of USD 500M became backed by realisable assets of around USD 315M as of 13 May 2022 due to the de-pegging event."

"Hodlnaut Cuts Staff as Terra Exposure Is Revealed", Crypto Briefing
Tweet by FatMan

August 2, 2022

CoinShares investment firm reports $21.5 million loss from Terra collapse

(attribution)

In their Q2 earnings report, European cryptocurrency investment firm CoinShares reported that they'd only made $120,000 in net income in the most recent quarter, down from more than $32 million in Q1. They explained this was largely because of an enormous loss that resulted from the May collapse of the Terra ecosystem, costing the firm £17.7 million ($21.5 million).

"CoinShares reports $21.7M loss tied to Terra implosion", Cointelegraph

July 20, 2022

Korean authorities raid seven cryptocurrency exchanges in relation to Terra investigation

Korean police cars parked outside an office building at nighttime. A lit "Upbit" sign is visible.

Korean police executing one of the raids (attribution)

Prosecutors working on the fraud case around the May Terra/Luna collapse raided seven cryptocurrency exchanges in South Korea including Bithumb, Upbit, and Coinone. They also raided eight other offices and residences in connection to the investigation. The investigators are reportedly looking for evidence to determine whether Terra founder and CEO Do Kwon may have intentionally spurred the collapse of the ecosystem.

"Prosecutors Raid 7 Korean Exchanges Amid Terra Probe: Report", CoinDesk

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