South Korean prosecutors have banned Terraform Labs employees from leaving the country as an investigation into the company and its co-founders deepens after the $40bn implosion of its cryptocurrency.
The move follows the sudden collapse of terraUSD, a stablecoin, and its accompanying token luna in May and comes as financial watchdogs around the world seek to tighten regulation of the crypto market.
The Seoul Southern District Prosecutors’ Office told the Financial Times on Tuesday that the travel ban had been imposed on “dozens” of former and current Terraform Labs employees, declining to give further details.
The implosion of terraUSD and luna — which were developed by Terraform Labs’ Stanford-educated co-founder Do Kwon — sparked chaos in cryptocurrency markets and wiped out retail investors across the sector.
The price of bitcoin, the world’s most actively traded cryptocurrency, dipped below $20,000 for the first time since November 2020 over the weekend and is about 70 per cent below the high it hit in November 2021.
South Korea’s no-fly ban on Terraform Labs came after a special financial crimes unit in the prosecutors’ office launched an investigation last month into two complaints filed on behalf of 81 investors. The investors alleged that “Terraform founders and the company deceived investors with their flawed algorithmic coins”, according to the documents.
The terraUSD stablecoin, which was launched in 2020, was designed to hold a steady value of $1, but its dollar peg was broken in May and investor faith in it quickly evaporated.
Daniel Hong, an ex-employee of Terraform Labs, wrote on Twitter that he was unable to fly to New York as a result of the travel ban. “People being treated as potential criminals like this is absolutely outrageous and unacceptable,” he said, adding that “anyone who [was] willing to co-operate would no longer want to after this madness”.
tbh people being treated as potential criminals like this is absolutely outrageous and unacceptable
bet anyone who were willing to cooperate would no longer want to after this madness
— Daniel Hong 🪄 (@unifiedh) June 20, 2022
Kwon’s legal problems extend beyond South Korea. A US court has ordered him to comply with subpoenas from the Securities and Exchange Commission regarding the sale of potential unregistered securities.
The SEC is seeking information on Mirror Protocol, a trading network built on the Terra ecosystem that offered customers tokens closely tracking the price of some of the largest listed companies in the US, such as Apple and Amazon.
In northern California, a class-action lawsuit was filed this month in which plaintiffs accused Kwon and his company of selling unregistered securities and misleading investors by “repeatedly touting the stability of UST”.
Kwon’s lawyer did not respond to a request for comment from the Financial Times.