Terraform Labs, Do Kwon Transferred More Than 10K Bitcoin Out of Platform Accounts After Collapse: SEC

The securities regulator made the allegation in a court filing as it sued the company for misleading customers.

AccessTimeIconFeb 17, 2023 at 2:27 p.m. UTC
Updated Feb 17, 2023 at 5:28 p.m. UTC

The U.S. Securities and Exchange Commission accused stablecoin issuer Terraform Labs and its founder, Do Kwon, of transferring thousands of bitcoin worth millions of dollars to a Swiss bank account following the enterprise's collapse in May, court filings from Thursday show.

The SEC filed suit against the company and Kwon for misleading customers on a number of issues, including the sale of unregistered securities.

The filing alleges the defendants first transferred more than 10,000 bitcoin "from Terraform and Luna Foundation Guard crypto asset platform accounts to an un-hosted wallet," which was used to store crypto outside of custody or exchange platforms.

"On a periodic basis since May 2022, Terraform and Kwon have transferred – and continue to transfer – [b]itcoin from this wallet to a financial institution based in Switzerland and have converted the [b]itcoin to cash," the filing said, adding that since June 2022, more than $100 million was withdrawn from that Swiss bank.

The complaint adds that by the end of May, crypto tokens attached to the enterprise including the stablecoin terraUSD (UST) and luna token "were essentially worthless, wiping out more than $40 billion in combined market value."

The collapse of Kwon's crypto enterprise last year sent ripples through the industry and set off a series of high-profile bankruptcies that are ongoing. Authorities in South Korea, who are looking for the disgraced founder, have also frozen funds that are suspected to be tied to him.

Swiss financial regulator FINMA declined to comment on the case, and said it "regularly cooperates (actively and passively) with international authorities in the context of administrative assistance."

UPDATE (Feb. 17, 15:58 UTC): Adds comment from Switzerland's FINMA in last paragraph.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.