Do Kwon, the creator of the stablecoin TerraUSD (UST) and its sister token Luna, is facing legal prosecution in South Korea over the collapse of the two coins that wiped out billions of dollars from investors around the world earlier this month.
The Seoul Southern District Prosecutors' Office said Friday that it has kicked off an investigation on Terraform Labs, the organization behind the stablecoin project Terra led by Do Kwon, and assigned the case to its Financial and Securities Crime Joint Investigation Team, a special financial crimes unit brought back recently by the newly appointed justice minister Dong-hoon Han, according to local media.
The announcement came a day after five Korea-based crypto investors with combined damages of 1.4 billion won (about $1.1 million) filed criminal complaints against Kwon and his Terraform co-founder Daniel Shin over charges of fraud and other violations of financial regulations.
South Korea's financial authorities estimated that about 280,000 users owned a combined amount of 70 billion Luna in Korea.
"The design and issuance of Luna and Terra to attract investors, but the failure to properly inform them about the flaws, and the unlimited expansion of Luna’s issuance amounted to defrauding investors," said a representative from LKB & Partners, the law firm hired by the five investors bringing charges against Terraform Labs.
Do Kwon is also reportedly facing a tax fine of 100 billion won ($78 million) for evading corporate and income tax payments.
UST, which was once one of the most promising stablecoins, depegged from its $1 value last week and has since dropped to $0.079. Rather than being backed by fiat money or real life assets like some other stablecoins, the value of UST is maintained by "burning" its sister token Luna. The price of Luna has plummeted over 99% since last week.
The Block first reported Terraform Labs' in-house legal team has resigned in the wake of the UST and Luna collapse.
Terraform Labs is incorporated in Singapore but was registered to operate its business as Terraform Labs Korea in South Korea