Benzinga - The U.S. Department of Justice is reportedly investigating the collapse of TerraUSD (CRYPTO: LUNC), a stablecoin created by South Korean crypto entrepreneur Do Kwon.
This could potentially result in criminal charges against Kwon.
Citing sources familiar with the matter, a Wall Street Journal report stated the investigation involves questioning former team members of Kwon's company, Terraform Labs Pte. Ltd., and seeks to interview others.
The Federal Bureau of Investigation and the Southern District of New York, both part of the Justice Department, are conducting the probe.
Last month, the Securities and Exchange Commission (SEC) filed a civil fraud lawsuit against Kwon and Terraform Labs.
The lawsuit alleged Kwon and the firm misled investors about the risks associated with TerraUSD, a stablecoin that was designed to maintain a price of $1.
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When the coin lost its peg in May 2022, it resulted in a chain reaction that wiped out around $40 billion in market value, causing some investors to lose their life savings.
The Justice Department's investigation covers similar ground as the SEC's lawsuit.
Investigators are said to be looking into the relationship between Chai, a South Korean payment app, and the underlying blockchain that Terraform Labs created to power TerraUSD.
Specifically, they are questioning whether Chai used the Terraform blockchain for payments, as Kwon had claimed. The SEC alleged Kwon misled investors by claiming that Chai transactions were processed on Terraform's blockchain, when in fact the app used more traditional technology.
Chai Corp., the startup behind the app, had previously said that it stopped using Terraform's blockchain technology and digital assets to process its payments by 2021.
If Chai had indeed used the Terraform blockchain for payments, it would have been a rare instance of blockchain technology being used for a real-world application.
The SEC's lawsuit claimed Kwon's false claims about real-world usage of the blockchain duped investors into buying Terraform's cryptocurrencies.
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Photo: Terra screenshot
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