A South Korean court has issued an arrest warrant against Do Kwon, the founder of Terraform Labs, which created the cryptocurrencies Terra Classic USD and Terra Luna, on charges of violating the country’s Capital Markets Act, Bloomberg reported.
The probe comes after Terra Classic USD and Terra Luna (LUNA) lost more than 88 per cent of their value in May in a matter of few days.
In the last 24 hours to Wednesday evening, Terra Luna and Terra Classic USD fell around 35 per cent and 21 per cent, respectively.
The authorities are also probing if they can categorise TerraUSD as security.
In July, prosecutors had searched the home of Terraform Labs co-founder Daniel Shin.
Meanwhile, investigators placed “a notification upon arrival” on Kwon, meaning they will be notified when he enters South Korea.
South Korean authorities are expanding their probe into the UST stablecoin, initially pegged to the US dollar in a 1:1 ratio. It decoupled from its target price in mid-May, triggering a massive cryptocurrency sell-off. The market is yet to recover.
Kwon told the crypto data aggregator Coinage that South Korean authorities have not yet contacted him and that he had not been indicted. However, the investors have barred his staff from leaving the country.
In June, Seoul Southern District Prosecutor’s Office said it intends to summon them for interrogation as part of its investigation into whether the company committed fraud or breached any financial regulations before the collapse of the two cryptocurrencies in May.
Terra Luna and Terra Classic USD Crash
In May, the Terra token crashed, and its algorithmic stablecoin TerraUSD (USTC) lost the dollar peg following a series of adverse events.
Terra plunged from $83.04 on May 6, 2022, to $9.45 on May 11, while its blockchain algorithmic Stablecoin, TerraUSD (UST), was trading at $0.6131 at the time.
“The value of Terra’s family of Stablecoins is maintained through a system of arbitrage incentives, open-market operations, and dynamic protocol levers that maintain robust peg stability and scalability of supply without the centralised control,” said the Luna Foundation Guard website.
However, the algorithms failed that day, and as a result, scores of people, including over 200,000 South Korean investors, reportedly lost their invested money in Terra.
South Korean newspaper Donga reported that prosecutors raided the home of Terraform Lab co-founder Daniel Shin in Seoul as part of a broader investigation regarding fraud allegations and his role in the collapse of the TerraUSD (USTC).