On Monday, a former developer at collapsed crypto firm Terraform Labs testified against the company’s co-founders – Kwon Do-Hyeong and Shin Hyun-Seung – that they promoted Terra USD stable coin as a potential payment method to investors despite being fully aware that local regulations prohibited such a product.
Lee, whose full name was not disclosed due to South Korea’s privacy rules, testified during a witness questioning at a third trial for eight former Terraform Labs executives including Shin Hyun-Seung.
At the same time, former chief financial officer of Terraform Labs, Han Chang-Joon, was extradited from Montenegro to South Korea. The country’s Ministry of Justice decided to transfer Kwon’s key associate to South Korean authorities to face legal charges.
What Happened At Terraform Labs?
Terraform Labs was founded by Do Kwon and Daniel Shin in 2018 as a stablecoin company. The firm’s flagship product, the algorithmic stablecoin called TerraUSD, gained significant traction in the market in the subsequent years.
However, one fateful day in May 2022, TerraUSD depegged from the US dollar, causing the token to lose its dollar value and collapse. Terra, once considered among the largest stablecoins in the market, caused $60 billion in losses to investors and triggered the crypto winter that saw Bitcoin (BTC) crashing down to $16,000.
Following its disastrous collapse, South Korean prosecutors accused Kwon, Shin, and Terraform Labs of defrauding investors by falsely promoting TerraUSD as a medium of payment.
In September of the same year, a South Korean court issued arrest warrants against Kwon and five others, including Shin and Han, alleging they violated the country’s capital markets laws.
Interpol even issued a red notice for Kwon’s arrest. Kwon and Han were taken into custody at a Montenegrin airport in March 2023 for attempting to travel with forged documents including passports.
Former Developer Testifies That Terra Founders Were Aware Of The Token’s Issues As A Payment Method
Lee, a former developer at Terraform Labs, reportedly testified that Kwon was aware that regulations prevented TerraUSD from being used as a payment method in South Korea. This indicates that company executives had knowledge of the algorithmic stablecoin’s limitations but chose to hide it from investors.
Kwon and Shin’s defense team counterclaimed that Lee’s testimony was false.
Han, who was arrested in Montenegro on Monday, is expected to arrive in Seoul on Tuesday afternoon. He is alleged to have been involved in various financial crimes, including fraud in the capital market and investment services.
Meanwhile, Kwon remains under the custody of Montenegro police as local authorities are still debating on whether to extradite him to South Korea or the US.
Do Kwon And Terraform Labs Aiming For A Favorable Outcome In SEC-Filed Case
Terraform Labs and Kwon are embroiled in a legal battle with the US Securities and Exchange Commission (SEC) where they are making strategic moves to challenge the testimony of Dr. Matthew Edman, a key expert witness for the SEC.
Edman asserted that transactions generated by Terraform Labs’ LP Server did not represent real-world Chai transactions but were merely a reflection of user and merchant activities. The defendants argued that the court failed to acknowledge Edman’s findings lacking essential data to validate his claims.
Terraform Labs contends that the court overlooked the fact that Chai, and not the defendants, had possession of the LP server and its relevant inputs. They claimed that the detail was previously acknowledged by the District Court for the Southern District of New York.
As the case progresses, Kwon and Terraform Labs are aiming for a more favorable outcome, especially the reconsideration of Dr. Edman’s testimony.
Meanwhile, Terra co-founder Daniel Shin argued in court that South Korean regulators had not established a clear stance on using cryptocurrencies as a payment method. He also claimed innocence by stating that he had left the company two years before the collapse, asserting that he had no connection to the events that unfolded.
