Justice Department Probes Collapse of Do Kwon’s TerraUSD Stablecoin

The Justice Department is investigating last year’s collapse of the TerraUSD stablecoin, adding the risk of U.S. criminal charges to the pressure on its creator, South Korean crypto entrepreneur Do Kwon, the Wall Street Journal reported. The Federal Bureau of Investigation and the Southern District of New York have questioned former team members of Mr. Kwon’s company, Terraform Labs Pte. Ltd., in recent weeks and sought to interview others, the people said. The FBI and SDNY are both parts of the Justice Department, and SDNY often takes the lead in high-profile prosecutions of financial crimes. The Securities and Exchange Commission filed a civil fraud lawsuit last month against Mr. Kwon and Singapore-based Terraform Labs in Manhattan federal court. The suit accused Mr. Kwon and the firm of misleading investors about the risks of TerraUSD, a so-called stablecoin designed to maintain a price of $1. The coin lost its peg in May 2022, causing a chain reaction that wiped out some $40 billion in market value and cost some investors their life savings. The Justice Department’s probe covers similar territory as the SEC suit, the people said. Among the topics that investigators asked about were the relationship between Chai, a South Korean payment app, and the underlying blockchain that Terraform created to power TerraUSD, some of the people said. The SEC accused Mr. Kwon of misleading the public by claiming that Chai transactions were processed on Terraform’s blockchain, when in fact Chai used more traditional technology, according to the lawsuit. Read more. (Subscription required.)