The Alleged Fraudulent Transactions Surrounding Terra Blockchain Project

The Alleged Fraudulent Transactions Surrounding Terra Blockchain Project

In a recent filing by the Securities and Exchange Commission (SEC), shocking allegations have come to light regarding the co-founders of the now-defunct Terra blockchain project. The SEC claims that the leaders of Terraform Labs, the company behind the project, conspired to create fraudulent transactions during the development of the project.

According to the SEC, Terraform Labs partnered with a payments app called Chai with the purported intention of settling transactions on-chain. However, it is alleged that instead of carrying out the transactions on the blockchain as claimed, the leaders of Terraform Labs “faked Chai payments onto the Terraform blockchain.”

Chat logs from 2019 revealed conversations between Terraform Labs co-founders, Daniel Shin and Do Kwon, discussing their plans to falsify transactions. Shin inquired about the timeline for staking participation and the end of token airdrops. In response, Kwon proposed the creation of fake transactions that would appear real, generating fees. Kwon also expressed his intention to obscure any evidence of fraud, stating, “I won’t tell if you won’t.”

While the extent to which the co-founders carried out their plan remains unclear due to the termination of the partnership between Terraform Labs and Chai in 2020, the SEC asserts that the deception was highly effective. Investors allegedly purchased “hundreds of millions of dollars” worth of LUNA and other tokens under the belief that these purchases were made on Terra’s blockchain as a result of the Chai transactions.

The SEC included the incriminating chat logs as part of a filing to have Do Kwon deposed and provide testimony in a securities case related to the alleged fraudulent transactions. To achieve this, the SEC aims to extradite Kwon from Montenegro, where he is currently serving a prison sentence for forgery of travel documents.

In response to the SEC’s request, defense lawyers have attempted to challenge its validity, claiming that it is impossible for Kwon to leave Montenegro. Furthermore, they assert that the chat logs in question refer to staking transactions rather than the Chai partnership.

This new filing by the SEC adds to the charges originally filed in February against Terraform Labs, Do Kwon, and other entities. At that time, the SEC alleged unregistered securities sales and fraud.

The allegations surrounding the fraudulent transactions within the Terra blockchain project have raised serious concerns about the integrity of the project and its leaders. The extent of the fraud and the potential impact it has had on investors is yet to be fully determined. With the SEC’s ongoing pursuit of evidence and the defense lawyers’ attempts to challenge the accusations, it remains to be seen how this case will unfold and what consequences the co-founders will face if found guilty of the alleged fraudulent activities.


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