Thursday, November 30, 2023

Following the U.S. Securities and Exchange Commission’s (SEC) request to interrogate Do Kwon, the founder and ex-CEO of Terraform Labs, the regulatory agency disclosed an alleged conversation between Kwon and his erstwhile business associate, Daniel Shin. Kwon is accused of stating that he could create fraudulent transactions on the Terra blockchain to not only make them appear genuine but also accumulate fees. He further asserted his intention to make such manipulated transactions virtually untraceable.

SEC Reveals Exchanged Messages Alleging Falsified Transactions between Kwon and Shin

Legal documents submitted by the SEC cite a supposed interaction between Do Kwon and Daniel Shin, the former CEO of Chai. The SEC alleges, “Kwon engineered a plan to fabricate transactions within Chai on the Terra blockchain with the aim of portraying greater activity to mislead investors.”

The U.S. securities watchdog elaborated:

During the nascent phase of the partnership between Terraform and Chai, private discussions between Kwon and Shin revealed Kwon’s plans to leverage Chai to generate deceptive transactions on the Terra blockchain, designed to appear legitimate and generate fees.

The partnership between Terra and Chai, announced on June 11, 2019, drew significant attention. The companies clarified that this collaboration would integrate Terra into South Korea’s TMON, a robust e-commerce platform offering an extensive range of products, from electronics and apparel to household items and gifts.

The alleged exchange between Kwon and Shin, dated May 9, 2019, has Kwon purportedly claiming, “I can engineer transactions that will seem genuine, thus accruing fees.”

Within the released text, Shin questioned the risk of detection concerning the veracity of these transactions. In response, Kwon is alleged to have assured, “I will endeavor to make them undetectable.”

After convincing Shin to tacitly agree to the scheme — an agreement ostensibly made under the cover of confidentiality with the phrase ‘I won’t tell if you don’t’ — Shin appears to suggest a pilot test to “observe the outcomes.”

Recent developments reveal that following the SEC’s move to question Kwon, his legal team has labeled the task as “unfeasible,” citing his confinement in Montenegro. Contradicting this position, the SEC’s lawyers argue the essential nature of Kwon’s testimony.

“As it stands, the SEC is being obstructed from exercising its basic right to collect pertinent information as it has not had the opportunity to question the most pivotal witness in the matter, who, through his legal team, has been actively participating in his own evidence gathering from the SEC and other third parties,” states the SEC document.

The intricate relationship between Terra and Chai has triggered speculation, especially after the downfall of their joint ecosystem. Complicating matters, an informant going by the pseudonym “Fatman” released a series of allegations claiming that Kwon transformed Chai into his “private financial manipulation apparatus.”

“The only requirement was to fabricate a semblance of retail demand and then promote the storyline that the Terra stablecoin KRT had widespread utility,” the whistleblower wrote on May 28, 2022.

What are your perspectives on the alleged discussions between Shin and Kwon? Please share your viewpoints on this topic in the comments section below.

Frequently Asked Questions (FAQs) about SEC investigation on Do Kwon and Terra Blockchain

What is the main focus of the SEC’s allegations against Do Kwon and Daniel Shin?

The SEC alleges that Do Kwon, the founder and former CEO of Terraform Labs, and Daniel Shin, the former CEO of Chai, conspired to fabricate transactions on the Terra blockchain. The purported aim was to deceive investors by making the blockchain appear more active than it was.

What evidence does the SEC provide to support its claims?

The SEC has submitted legal documents that include alleged private chat conversations between Do Kwon and Daniel Shin. In these chats, Kwon supposedly outlines his plan to create deceptive transactions that would appear legitimate and generate fees on the Terra blockchain.

What was the significance of the partnership between Terra and Chai?

The collaboration between Terra and Chai was announced with considerable excitement on June 11, 2019. It was aimed at integrating Terra into South Korea’s TMON, a robust e-commerce platform. The partnership drew attention for its potential to significantly impact the e-commerce and blockchain sectors.

How did Daniel Shin react to Do Kwon’s proposed scheme?

According to the disclosed text messages, Daniel Shin appears to have been initially hesitant but was eventually convinced by Kwon to agree to the scheme. Shin even seemed to suggest a pilot test to observe the outcomes, all under a pact of confidentiality.

What recent developments have taken place regarding Do Kwon’s legal status?

After the SEC moved to question Do Kwon, his legal representatives described the task as “unfeasible,” citing his confinement in Montenegro. The SEC’s lawyers contest this, arguing for the essential need to interrogate Kwon for gathering relevant facts.

How have external parties reacted to the unfolding situation?

An informant operating under the pseudonym “Fatman” has released allegations claiming that Do Kwon used Chai as his private financial manipulation apparatus. These claims add another layer of complexity and speculation to the ongoing investigation.

What risks do investors face due to these allegations?

If the allegations are proven true, investors in Terra and Chai could face substantial financial losses, as the supposed fraudulent activities would undermine the companies’ market positions and could lead to regulatory penalties.

What is the SEC’s current position?

The SEC claims it is being obstructed from collecting pertinent information and has not yet had the opportunity to question Do Kwon, whom they regard as the most pivotal witness in the case.

More about SEC investigation on Do Kwon and Terra Blockchain


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