SEC Filing: Do Kwon and TerraForm Labs Laundered $100M of Bitcoin

Do Kwon, who is a co-founder of Terra, and TerraForm Labs (TFL) have been accused by the Securities and Exchange Commission (SEC) of being involved in money laundering, which allegedly occurred after the ecosystem of Terra collapsed in May 2022.

Complaint filed by the SEC against Kwon

According to a 55-page complaint filed by the Securities and Exchange Commission (SEC) in the Southern District Court of New York, the defendants, Do Kwon and TerraForm Labs (TFL), have been accused of laundering over $100 million worth of Bitcoins.

In support of its claim that Do Kwon and TerraForm Labs (TFL) were involved in money laundering, the Securities and Exchange Commission (SEC) pointed to a specific transaction in which over 10,000 Bitcoins were moved by Kwon and TFL from Luna Foundation Guard (LFG) and Terra to a cold wallet. These funds were then transferred to an undisclosed Swiss bank account and converted to fiat currency. The SEC alleges that since May 2022, the defendants have withdrawn more than $100 million from the same Swiss financial institution using this process.

“On a periodic basis since May 2022, TFL and Kwon have transferred – and continued to transfer – Bitcoin from [LFG and TerraForm platform] to a financial institution based in Switzerland and have converted the Bitcoin to cash. Between June 2022 and the date of this complaint, over $100 million in fiat has been withdrawn from that Swiss account,” it stated.

In addition to the money laundering allegations, the Securities and Exchange Commission (SEC) also accused Do Kwon and TerraForm Labs (TFL) of misleading investors by artificially restoring the dollar peg of TerraUSD (UST), the ecosystem’s algorithmic stablecoin. The SEC claims that the defendants requested a third party to purchase a significant amount of UST to keep the stablecoin’s price artificially pegged to the dollar.

“UST’s price falling below its $1.00 ‘peg’ and not quickly being restored by the algorithm would spell doom for the entire Terraform ecosystem, given that UST and LUNA had no reserve of assets or any other backing,” the SEC’s complaint read.

Do Kwon Officially Charged by the SEC

The day before the money laundering and UST peg restoration allegations were made, the Securities and Exchange Commission (SEC) had already charged Do Kwon and TerraForm Labs (TFL) with conducting unregistered securities offerings and fraud. The SEC stated that several cryptocurrencies involved in the Terra ecosystem, including TerraUSD (UST), Luna (LUNA), and Mirror Protocol (MIR), are considered securities under its regulatory oversight.

However, after the Terra ecosystem collapsed, Do Kwon’s location remains unknown. Since South Korean authorities issued an arrest warrant for him, law enforcement agencies worldwide have been unable to arrest him.

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