Seoul, South Korea – Daniel Shin, the co-founder of Terraform Labs, has been indicted on multiple charges, including fraud, breach of duty, and embezzlement, in connection with the crash of the cryptocurrency firm’s TerraUSD and Luna coins in May last year.
The collapse of the coins wiped out nearly 50 trillion won ($37.5 billion) in market value. Shin and Do Kwon, the other co-founder, were behind the creation of TerraUSD and Luna, respectively. Kwon is currently detained in Montenegro for passport forgery, and prosecutors are seeking his extradition.
TerraUSD was a stablecoin pegged to stable assets, like the U.S. dollar. However, it dropped as low as 10 cents in May, breaking its 1-to-1 peg with the U.S. dollar. Prosecutors suspect Shin knew the price peg system was algorithmically impossible but kept their prices up through trading manipulation and fraudulent publicity campaigns to dupe investors globally. Shin and his accomplices had already pocketed 462.9 billion won in illegal profits when the two coins crashed last year, prosecutors concluded.
Shin is also charged with collecting 122.1 billion won of investment from venture capital firms at home and abroad with a bogus project promoting the coins as a currency to pay for goods. Shin has been indicted without physical detention by the Seoul Southern District Court.
Terraform Labs said in a statement that it was cooperating with the investigation and that it had implemented new measures to prevent such incidents from happening again.
The incident has raised concerns about the regulation of the cryptocurrency market, which remains largely unregulated in many parts of the world. South Korea, which is home to a large number of cryptocurrency investors, has been tightening its regulations in recent years, including requiring cryptocurrency exchanges to register with the country’s financial watchdog and imposing taxes on cryptocurrency trading profits.
The Terraform Labs case is the latest in a string of cryptocurrency-related fraud cases in South Korea. Last year, the CEO of CoinUp, a cryptocurrency exchange, was sentenced to 16 years in prison for fraud and embezzlement, and the founder of Youbit, another cryptocurrency exchange, was sentenced to three years in prison for fraud.
The Terraform Labs case is also a reminder of the risks involved in investing in cryptocurrency, which is still a relatively new and largely untested asset class. While some investors have made substantial profits from cryptocurrency investments, others have lost their life savings due to fraudulent schemes or sudden price crashes. Experts advise investors to be cautious and to do their due diligence before investing in any cryptocurrency.
