Terra founder Do Kwon and Terraform Labs (TFL) were ordered by a court on Wednesday to comply with a Securities and Exchange Commission (SEC) probe.
But the probe is not in relation to the blockchain’s recent meltdown. Rather, like a recent probe against Binance, and a long running case against Ripple, the SEC is investigating whether Terra’s tokens are illegal securities.
While Terra’s crash, which cost investors over $30 billion, has attracted ire from the SEC, so far, the watchdog has not initiated any action over the matter.
But South Korean authorities are investigating allegations of embezzlement by TFL. The country is also planning to toughen crypto laws in wake of the Terra crash.
SEC investigating Terra over illegal token sales
According to a report by legal news publication Law360, the SEC investigation dates back to September 2021, when the watchdog served Kwon and TFL with subopenas.
This week, a court ruled that Kwon cannot dodge the investigation on the grounds that TFL is a South Korean entity, given that it has customers in the United States.
The court also dismissed Kwon’s allegations that the SEC was not authorized to serve him with a subopena.
The SEC is specifically probing Terra’s Mirror Protocol, which allowed trading in tokens tied directly to the price of real world stocks. A series of exploits last month have rendered Mirror unusable, after $92 million was drained from the program.
Kwon, TFL face growing scrutiny after LUNA, UST collapse
Kwon and TFL have been subject to severe scrutiny after the Terra collapse, with multiple reports suggesting that holders are planning legal action against the two.
With more allegations of fraud and mismanagement being levelled against Terra, the blockchain’s recent relaunch has largely flopped.
Prices of the relaunched LUNA token are in freefall, plummeting over 80% since an airdrop in late-May. The token has lost 22% in the past 24 hours, and is trading at $2.83.
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