U.S. SEC Initiates Investigation After Terra’s UST Stablecoin Collapse, Founder Do Kwon In Trouble

The U.S. securities and Exchange Commission (SEC) has initiated a fresh investigation for Terraform Labs to check whether if the TerraUSD (UST) stablecoin violated any securities laws for investor protection, said sources familiar with the matter.

The SEC is looking whether Terraform Labs broke any rules for securities and investment products said the source, as reported by Bloomberg. The investigation initiated by the U.S. SEC could further put pressure on Terraform Labs and its founder Do Kwon who has been already facing scrutiny by the SEC in another crypto project dubbed Mirror Protocol.

The implosion of the UST stablecoin last month has sent shivers across the crypto industry. Terra’s UST stablecoin lost its USD peg which led to the collapse of the entire LUNA ecosystem eroding more than $40 billion worth of investors’ wealth.

The SEC has declined to comment on the recent report of Terra investigation. But speaking to Bloomberg, Do Kwon said that they aren’t aware of any such SEC probe. “We are not aware of any SEC probes into TerraUSD at this time - we’ve received no such communication from the SEC and are aware of no new investigation outside of that involving Mirror Protocol,” said Kwon.

Apart from the U.S. SEC, there have been several investigations initiated against Terra in South Korea. The Seoul Metropolitan Police has been investigating allegations that Terraform Labs embezzled Bitcoin holdings that were reportedly kept as reserves to defend the UST’s peg to the U.S. Dollar.

As per the latest report from south Korea’s local news publication Naver, the U.S. SEC has caught the possibility of money laundering by Terra founder Do Kwon before the hack.

Another local publication JTBC reported: “The US Securities and Exchange Commission recently conducted a remote video survey of some of Terra’s key designers and focused on inquiring about Terra’s poor design structure.”

Some of the Terra’s designers said that they had already warned Do Kwon about the possibility of Terra collapse several times which he ignored.

The report also states that more than $80 million flew every month from the company’s funds to different wallets for operating expenses. The U.S. SEC found that Do Kwon started the withdrawals a few months before the Terra collapse leading to greater suspicion of money laundering. However, one of the Terra employees told the SEC that Kwon didn’t receive any official payment from Terraform.