Terra Founder Faces Government Investigations, Lawsuits, and $78M Fine for Tax Evasion
South Korean authorities have formed an emergency financial crimes unit to investigate the collapse of stablecoin protocol Terra, and fined the protocol’s founder, Do Kwon, $78M for tax evasion, local media reported. The government agencies want to understand why UST, Terra’s US dollar stablecoin, lost its peg on May 9. The crash wiped $18 billion …
By: Samuel HaigDeFi News
South Korean authorities have formed an emergency financial crimes unit to investigate the collapse of stablecoin protocol Terra, and fined the protocol’s founder, Do Kwon, $78M for tax evasion, local media reported.
The government agencies want to understand why UST, Terra’s US dollar stablecoin, lost its peg on May 9. The crash wiped $18 billion from the stablecoin market, $26B from Terra’s TVL, and sent Terra’s network token, LUNA, from $65 to a fraction of a cent within four days of the crash.
Yonhap News Agency reported that Korea’s Financial Services Commission and Financial Supervisory Service have requested data from local crypto exchanges, including trade volumes for LUNA and UST, and the number of investors hurt by the crash. “I think they did it to draw up measures to minimize the damage to investors in the future,” one local exchange operator told Yonhap.
Local media outlet Naver reported on May 18 that Korea’s tax authority found Terra’s parent companies guilty of evading corporate and income taxes. The Korean National Tax Service said Kwon had transferred LUNA from his software company,Terraform Labs, to the Singapore-based Luna Foundation Guard (LFG) – a non-profit launched to support Terra – to evade taxes.
The tax agency fined Do Kwon $78M, and may charge him more for the $3B of Bitcoin bought and sold by LFG in a last ditch effort to save UST, reported Naver. In December, the NTS asked Terraform Labs’ founders Do Kwon and Daniel Shin to each pay $100M in taxes, but they refused to comply, arguing that they were not liable because Terraform Labs is based in Singapore. The NTS said their activities were carried out from Korea.
A May 13 report from Digital Today claims that Do Kwon sought to dissolve Terra’s Korean entities on April 30, just days before Terra collapsed. Onlookers have speculated the move suggests Do Kwon was bracing for Terra’s failure weeks before the chain imploded.
Some of the 200,000 Koreans that invested in either LUNA or UST now want their money back, and are suing Kwon over the failed protocol. On May 18, Korean media outlet Munhwa Ilbo reported that local law firm LKB & Partners has filed a suit on behalf of investors who lost money, including the law firm’s employees.
Doo Wan Nam, the co-founder of investment firm StableNode, tweeted that another group of 1,100 Koreans called ‘Victims of Luna, UST cons’ will file another lawsuit against Do Kwon next week.
Kwon still thinks the protocol can be saved. On May 18, he launched a governance proposal for the network’s “revival plan.” The proposal would launch a new Terra blockchain, airdrop a new LUNA token to existing investors, and scrap the algorithmic stablecoin altogether.
The proposal would also rename the original blockchain to Terra Classic. The Terra Builder Alliance, a collective of Terra ecosystem stakeholders, launched the governance proposal on May 18. More than 87% of votes are in favor of the proposal, but quorum is yet to be reached. Voting ends in six days.