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Multiple class action lawsuits filed against Terra, Do Kwon and knows associates

July 25, 2022
Several new cryptocurrencies followed Bitcoin in its astronomical rise during the bull run from 2021 to early 2022, one of which was Terra Luna who rose from $5 last year to reach an all time high of $116 in April of this year. But all of a sudden, on May 9, the cryptocurrency collapsed resulting in LUNA loosing 99% of its value within just 48 hours.

Terra is a public blockchain platform that helps developers to build infrastructure for applications on which people can trade. TerraUSD(UST) is linked to another token Luna, whose price is variable and depends on the condition of the rest of the cryptocurrency market while the price of UST is always pegged to $1. Terra managed this ecosystem by buying and selling those two coins in the different markets to ensure that if UST falls then Luna can back it up.

Because 1 UST was fundamentally defined as being equal to $1 worth of Luna, hence the amount of Luna in 1 UST would vary constantly depending upon the market price of Luna while a person holding a certain amount of UST would always get the same amount of money (in US Dollars) back that was initially invested. This created arbitrage incentives for traders that were designed to keep the value of UST at or close to $1.

However the entire system fell apart in May when several large investors of UST and Luna suddenly started selling these coins leading to huge drops in their prices. Terra announced that they intended to build reserves of Bitcoin to balance the system, by using it to buy more Luna and UST in hopes of controlling their falling prices but this idea did not work at all.

Both Terra (LUNA) and TerraUSD (UST) were created by Terraform Labs which was founded in 2018 by Daniel Shin and Do Kwon and located in Seoul, South Korea. South Korean prosecutors that had been investigating the monumental collapse of Terra's LUNA cryptocurrency reportedly raided the home of one of the founders, Shin Hyun-seong, on July 22 following 15 other raids that took place on related sites, even including seven cryptocurrency exchanges which were all conducted by Seoul prosecutors' Joint Financial Crimes Investigation Team.

Some of the targets of the search and seize raids included Tchai Corporation, Kernel Labs and Flexi Corporation which were either affiliates of Terraform Labs or had Terra's founders working at top managerial positions. The prosecutors reported that all of LUNA's transaction data was successfully secured as a result of those raids which came as a result of several unhappy LUNA investors raising fraud allegations in their lawsuits against the CEO.

Three class action lawsuits have now been filed against TerraForm Labs, Do Kwon, and Nicholas Platias in the U.S. District Court for the Northern District of California, with a plaintiff joining deadline of August 19. Bragar Eagel & Squire PC announced filing the lawsuit in a press release on July 25, which targeted TerraForm Labs founder Do Kwon, Nicholas Platias, and affiliates including Republic Capital, Republic Maximal, Tribe Capital, DFinance Capital, DFinance Technologies, Jump Crypto, Jump Trading, GSR/GSR Markets, and Three Arrows Capital (3AC).

The class action lawsuit has been filed on behalf of all investors, including individuals and companies who purchased or acquired any of the Terra tokens between May 20, 2021 and May 25, 2022. The tokens include TerraUSD (UST) and Terra (LUNA), KRT, ANC, WHALE, ASTRO, APPOLO, XDEFI, MINE, aUST, vUST, MIR. Mirrored Assets such as mBTC, mETH, mVIXY, mTSLA, Liquidity Pool tokens such as UST-mVIXY-LP, bLUNA-LUNA-LP, XDEFI-UST-LP, and Bonded Assets such as bLUNA and bETH) are also included.

The Rosen Law Firm and Scott+Scott Attorneys at Law LLP have filed similar class action lawsuits having the same defendants, tokens, and allegations in the California district court. South Korea and the U.S. investigations teams earlier agreed to share details on their investigations into Do Kwon and the Terra-LUNA collapse. Terra developers have also been banned from leaving South Korea.

The complaint claims that the defendants "violated provision of the Exchange Act" by executing a plan, scheme and course of conduct that was successful in its intentions of deceiving retail investors causing them to purchase Terra Tokens at artificially inflated prices. Several other major entities have also been affected by the Terra fallout including Binance.US, who was hit with a class action lawsuit over the UST stablecoin, saying that it violated laws for the sale of unregistered securities.
Tags: Terra, Do Kwon, Luna