Korean court gets new evidence alleging Terra’s Kwon deceived investors with fake transfers

South Korean prosecutors have found new evidence alleging that Terra founder Do Kwon conspired with former Chai CEO Shin Hyun-Sung to deceive investors with fraudulent transactions.

Terraform Labs co-founder Kwon Do-Hyeong, a central figure in the collapse of the Terra and Luna tokens, allegedly conspired with Chai Corporation’s former CEO Shin Hyun-Sung to deceive investors with fake transactions, according to a report by Yonhap. News agency.

The Seoul Southern District Prosecutor’s Office reportedly presented new evidence to the court, revealing a May 2019 conversation between Kwon and Shin discussing the Chai payment app that Terraform used to process millions of transactions for Korean consumers.

In the chat, Kwon told Shin that he could “create fake transactions that look real,” adding that the app could reduce the number of fake transactions as they grow larger and make them “indistinguishable,” according to the report. Shin agreed to the plan, suggesting that they should “test it on a small scale and see what happens.”

Prosecutors argue that this conversation shows that Kwon and Shin intended to manipulate Terra-related operations to deceive investors from the project’s inception. But Shin and the other defendants deny any fraudulent intent in court, attributing the Terra and Luna crash to Kwon’s failed management and external attacks.

Following the Terra crash, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit accusing Kwon and Terraform Labs of misleading investors about Terra’s stability. In early April, a jury in New York found Kwon guilty of fraud, leading to a settlement in which Terraform Labs agreed to pay $4.47 billion in damages and fines.

The Terraform Labs co-founder fled South Korea in April 2022, just before the collapse of Terra and Luna, and was arrested in Montenegro in March 2023 for passport fraud. He remains detained in Montenegro, with New York prosecutors charging him with eight counts of securities fraud and other crimes.