Terra co-founder Daniel Shin

Terra co-founder Daniel Shin faces US probe on Terraform Labs links

The U.S. Securities and Exchange Commission (SEC) has obtained court approval to question Terraform Labs co-founder Daniel Shin over his affiliations with the embattled Terraform Labs.

The SEC filed a motion in July, seeking consent to interrogate Shin as it prepares its case against Do Kwon. After nearly two months, District Judge Jed Rakoff gave the green light to the SEC to collaborate with South Korean investigators in questioning Shin.

Specifically, U.S. authorities are keen on clarifying the extent of Shin’s Chai Corporation’s dealings with Terraform Labs. Shin exited his position in Terraform Labs to launch Chai Corporation as a payments firm, but both entities appear to have had long-running business dealings.

“What was Do Kwon’s role in the development of Chai Corporation’s payment processing business?” an excerpt of the SEC’s questions read. “Did Do Kwon have a role in developing the systems and applications used for Chai Corporation’s payment processing business?”

The SEC alleged that Chai Corporation may have been involved in an elaborate scheme to defraud thousands of investors. At the height of their popularities, Chai was marketed as using Terra’s network to settle transactions, relying on the LUNA token and TerraKRW, a stablecoin pegged to the Korean won.

The move to question Kwon follows the SEC’s case against Kwon and Terraform Labs for defrauding investors via the self-inflicted collapse of its ecosystem. In March 2022, the project’s algorithmic stablecoin (TerraUSD) de-pegged from the U.S. dollar, triggering major losses for investors.

South Korean investigators raided Shin’s private residence and Chai’s office complex in search of evidence leading to Terra’s collapse. The country’s parliament issued a summons to Shin to give testimony about the implosion while prosecutors pushed for an arrest warrant against the co-founder.

Unable to obtain an arrest warrant against Kwon, investigators froze $100 million worth of assets which they tagged as unlawful profits from the sale of pre-issued Luna tokens without prior disclosures to early investors.

Despite the multiple allegations of breaching Korea’s capital market laws, Shin maintains his innocence, expressing his readiness to contest all charges.

US and South Korea in extradition fight

Since his arrest early in the year, the U.S. and South Korea have been entangled in an extradition battle to secure Kwon from Montenegro. South Korea argues that a trial in Seoul will be the best move given the extent of evidence it has stacked up against Kwon.

South Korean authorities say they have enough evidence to secure a conviction and a jail term of up to 40 years for Kwon. Experts have pointed out that after serving a potential jail term in Korea, Kwon may be shipped to the U.S. to face charges over his role in Terra’s collapse.

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