In a recent filing by the Securities and Exchange Commission (SEC), shocking allegations have been made against the co-founders of the now-defunct Terra blockchain project. The SEC claims that the leaders of Terraform Labs, the company behind the project, planned to create fraudulent transactions during the development of the blockchain. This revelation has raised serious concerns about the integrity of the project and the extent of the fraud that may have taken place.

The Partnership with Chai

Terraform Labs had partnered with a payments app called Chai, with the intention of settling transactions on-chain. However, the SEC alleges that the leaders of Terraform Labs “faked Chai payments onto the Terraform blockchain” while carrying out the payments traditionally. This misrepresentation of transactions undermines the credibility of the project and raises questions about the intentions of its co-founders.

In chat logs dating back to 2019, the co-founders, Daniel Shin and Do Kwon, discussed their plans to falsify transactions in order to support their activities. Shin raised concerns about end users discovering the falsified activity, but Kwon reassured him by stating that he would make the fraud indiscernible. This unethical behavior and blatant disregard for transparency is deeply concerning and goes against the principles of trust and integrity that blockchain technology is built upon.

While the extent of the falsified data is unclear, the partnership between Terraform Labs and Chai allegedly lasted long enough to deceive investors. The SEC claims that investors bought “hundreds of millions of dollars” worth of LUNA and other tokens under the belief that the transactions had taken place on Terra’s blockchain. This deception has undoubtedly caused significant financial harm to these investors and eroded the trust in the project.

As part of its efforts to hold the co-founders accountable, the SEC has included the chat logs as evidence in a filing requesting Do Kwon’s deposition. If successful, the SEC’s request would require Kwon, who is currently serving a prison sentence in Montenegro for forgery of travel documents, to be extradited to the United States. However, Kwon’s defense lawyers have argued that his extradition is “impossible,” further complicating the legal proceedings.

During the legal proceedings, defense lawyers for Terraform Labs and Kwon attempted to challenge the SEC’s request. They argued that the chat logs in question discussed transactions related to staking rather than the Chai partnership, attempting to downplay the severity of the allegations. However, it is essential to thoroughly investigate these claims and determine the true extent of the fraudulent activity.

It is important to note that the SEC initially filed charges against Terraform Labs, Kwon, and other entities in February. These charges included allegations of unregistered securities sales and fraud, adding to the gravity of the situation. The investigation and case against the co-founders are still ongoing, and further revelations may come to light as more evidence is uncovered.

The alleged fraudulent transactions within the Terra blockchain project have cast a dark shadow over the integrity of the project and its co-founders. The SEC’s filing, backed by chat logs discussing the creation of fake transactions, highlights serious concerns about the ethical practices employed during the project’s development. As the legal proceedings continue, it is imperative to uncover the truth, hold those responsible accountable, and protect the interests of investors who have suffered financial losses. This case serves as a reminder of the importance of transparency, honesty, and ethical behavior in the blockchain industry.


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