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Something that I was only aware of once I looked into it was that Do Kwon and Terraform Labs have been having legal issues for a while now. Both Kwon and Terraform Labs have been under investigation by the Securities and Exchange Commission (SEC) since May of 2021 long before the LUNA explosions and subsequent implosion. A few weeks ago when news first broke that the SEC was launching an investigation into what had happened I had thought that that was it a single investigation into the collapse and subsequent $60 billion loss by investors.
Kwon's issues though run much deeper than just the LUNA collapse. The case that he was already being investigated for is a doozey that could actually be the one that gets him. Last year Mirror Protocol made a pretty big splash as it was a way for people to "mirror" stocks and then trade them 24/7 and not have to worry about markets closing and opening. I was personally a huge fan of this idea and still am however there is an issue with this idea. Stocks are securities and those regulations fall under the SEC's jurisdiction. Since the SEC is looking to establish itself as the regulator for crypto in the US it makes sense they would look into and go after this.
What I did not know about until looking into it was the pretty concerning relationship that seems to link Do Kwon to Mirror and UST. After Mirror fell apart as it did it exposed a huge issue in the technology and application in being able to "mirror" these stocks and for people to be able to buy and sell stocks like this. Armed with the evidence that a UST wallet had access to so many MIR tokens and secretly sold them off the SEC had the evidence they needed to launch the investigation which Kwon and Terraform Labs have fought ever since. Well on June 9th they lost their latest appeal to try and not have to turn over the documentation that they were subpoenaed for and since was an appeals court decision odds are it is the end of the line for trying to get out from having to hand over their docs about their connection with this wallet and Mirror Protocol.
For the SEC since the law and sentencing are firmly established if they can prove the link to Kwon and selling securities jail time is something that is easily in the cards along with a ton of restrictions on what he could do in the future. Add in that Terraform's lawyers were at one point in active negotiations with the SEC means that there is obviously something that they have that they were trying to trade away for some sort of protection or cooperation. If something does come of this investors in LUNA are going to be up in arms as the rise and fall of LUNA occurred during this investigation.
With the collapse of LUNA, the SEC got further ammo to investigate Kwon and Terraform Labs and has not shied away from this. One thing that I think most people in the space and in finance, in general, understand is that you cannot mess with the USD without suffering the consequences when you fail. It is the gamble you take when you peg your coin to the USD and with UST's collapse we have seen regulators around the world start really clamoring for the ability to regulate these stablecoins that really are anything but stable.
For this new investigation, I would expect to see South Korean officials, who have already launched an investigation, and the SEC to work together and share intel. This collapse hurt a lot of people and its attempt to resurrect the project with the hard fork has really fallen apart as quickly as it kicked off. While I am not an expert in law or regulation I could see the investigators look into if defrauding investors took place and if communication within Terraform contradicted what Do Kwon had publicly said which would result in a solid case against him. Only time will tell but with appeals running out in the first case the writing could be on the wall for Kwon and Terraform Labs.
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