Terra LUNA & LUNC Crash After South Korea Issues Warrant for Do Kwon

In Brief

• The Seoul courts have issued a warrant for the arrest of Terra co-founder Do Kwon.
• The warrant was reportedly connected to a violation of capital market regulations.
• Since the collapse, some company developers along with Do Kwon have been on the radar of regulatory institutions.

According to a text message from the prosecutor’s office cited by Bloomberg, the Seoul court has issued a warrant for the arrest of Terra co-founder Do Kwon and five additional people.

The warrant was reportedly connected to a violation of capital market regulations that led to the $40-billion rout. In a lawsuit, Bragar Eagel & Squire also previously alleged that Terra violated the Exchange Act by “carrying out a plan, scheme, and course of conduct” that was intended to “deceive retail investors” and ultimately encouraged them “to purchase Terra Tokens at artificially inflated prices.”

The development led to a 29% fall in Terra LUNA in the last 24 hours. In addition, Terra Luna Classic (LUNC) also dropped around 28% at the time of press as per data by CoinGecko. LUNC’s performance is especially in focus as the token had managed to outperform Bitcoin and Ethereum in the last 30 days.

Be[In]Crypto had recently reported that LUNC saw a significant rise after the introduction of a 1.2% burn tax on all swaps. But at press time, it was trading in a 24-hour range of $0.00025411 and $0.00038227.

The $40-million rout

Earlier in May, the algorithmic stablecoin Terra USD (UST) de-pegged from the dollar. The debacle that imbalanced the burning and minting mechanism of the ecosystem, wiped off over 90% of LUNA’s value.

Days into the debacle, Kwon endorsed a community proposal to expand the minting capacity of the ecosystem to $1.2 billion. And as part of “remedial measures to aid the pegging mechanism to absorb supply,” the proposal aimed to solve the problem of large UST withdrawals against a slow UST burning mechanism.

After maintaining silence for weeks, Do Kwon stated in an interview that he lost everything in the process while disputing fraud allegations. He also affirmed that he continued to have confidence in the development of Terra 2.0.

However, legal action began to mount up for Terraform Labs, the issuing organization of the stablecoin and its co-founder Do Kwon. In the past months, South Korea’s Southern District Prosecutors also raided Terraform Labs co-founder Daniel Shin’s home to investigate possible illegal activities.

Fraud allegations built up against the Do Kwon
Notably, Do Kwon was accused of extracting large amounts of money from the system before the collapse. FatMan, who is one of the Terra community members, claimed that Do Kwon took $2.7 billion out of the system. Kwon, on the other hand, shared on his social media account that his only income in the last 2 years was the salary he received from Terraform Labs.

Chainalysis had outlined in its report that the onus of the debacle lies on two traders. Experts remarked that it began on the night of May 7, when Terraform Labs withdrew UST 150 million from 3pool’s curve-based liquidity pool as part of a planned operation. Such a large and unique operation, according to analysts, increased the volatility of the pool.

Since then, some company developers along with Do Kwon have been on the radar of regulatory institutions of South Korea like the Financial and Securities Crimes Joint Investigation Team.

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