Terraform Labs’ co-founder Do Kwon is in trouble with three separate countries: he was served a class-action lawsuit in the United States earlier this June, the South Korean Ministry of Foreign Affairs have issued an arrest warrant for him and cancelled his passport in October, and now he is met with a representative action lawsuit in Singapore.
You can watch this video to know more about Do Kwon:
In laymen terms, a representative action lawsuit allows one or more people to represent a larger group of people in a suit against another party.
The lawsuit is led by Singapore native Douglas Gan Yi Dong and Spain national Julian Moreno Beltran, who claims to have lost about $1.1 million of TerraUSD.
The pair are representing 359 claimants, who allege that they have been misled into thinking that TerraUSD (UST) was designed to have a relatively stable price.
According to the court documents, UST stablecoin, which was pegged/tied to the US currency at a 1:1 ratio, was designed to act as a store of value, and therefore, was supposed “to be protected for the volatility” of the cryptocurrency markets.
However, TerraLuna’s implosion this May proved that statement to be false. Consequently, $40 billion in market capitalization was wiped out in a matter of weeks.
List of Accusations Made Against the 2 Ministers Who Rented Colonial Houses at Ridout Road:
Mr Beltran and Mr Gan are represented by Mr Mahesh Rai, Mr Brandon Yap and Ms Shreya Kittur from Drew and Napier.
The three defendants—Terraform Labs, its former head of research Nicholas Platias and Luna Foundation Guard (LFG)—are represented by Mr Lawrence The and Ms Melissa Thng from Denton Rodyk, as well as Ms Mazie Tan from Rajah & Tann.
In total, the claimants are alleging that they have lost about US$56.9 million (S$79.8 million).
The sum they are seeking is the difference in value between what they believe their assets were worth (in US dollars) and the value of their assets after the crash.
The plaintiffs are also contending for aggravated damages for fraudulent misrepresentation.
Citing a white paper published by Kwon and Platias a year before the launch of UST in 2020, the plaintiffs highlighted the fact that the pair had claimed that the aforesaid cryptocurrency would be able to maintain a stable price with the assistance of its algorithmic sister currency Luna.
The plaintiffs are also alleging that Kwon had made “fraudulent misrepresentations” despite being aware of the “structural weakness” of the UST Stablecoin, thus inducing investors into purchasing the asset.
But it will be an uphill battle for the plaintiffs to prove fraudulent misrepresentation, as they are burdened with proving that the person who made the representation had done so knowing that their statement was false, or was without belief in its truth, or recklessly as to its truth.
With regards to these allegations, Terraform Labs has rejected them, arguing that there is a difference between a public market event—i.e., external market conditions that led to the coin’s collapse—and a purposeful fraud.
The defendants claim that the risks were “publicly known and discussed” and the code for the algorithmic cryptocurrency was open-sourced.
In simpler terms, the defendants are saying that the UST traders were well-aware of the risks involved, and therefore there was no misrepresentation in the following transactions/investments.
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The Domino Effect
Upon Terra’s collapse, the abrupt loss of confidence triggered a massive crypto selloff, causing the prices of Bitcoin and other major cryptocurrencies to tumble.
In May, TerraUSD crashed twice in a row; first it fell below 60 US cents (as opposed to maintaining its 1:1 value with the US dollar), then it reached a record low of 20 US cents two days later.
In a few days, the market value of UST plunged from US$18.4 billion to US$5 billion.
When it became apparent that TerraLuna would not be able to recover, panic surged even higher within the cryptocurrency markets.
Bitcoin’s value fell by 8% to $26,570 in the same period, when it was worth US$40,000 a week before.
Ethereum, the second largest coin by value, lost 20% of its value within 24 hours as well.
At the same time, the Terra crash resulted in a string of bankruptcies of high-profile crypto lenders Celcius, Voyager and hedge fund Three Arrows Capital.
For co-founder Do Kwon, he lost nearly all his net worth in the Terra crash.
Not only is facing another class-action lawsuit in the United States, but he is also being investigated by the US Securities and Exchange Commission as to whether his company has violated federal protection rules with the way it advertised UST.
In his own home country of South Korea, he has become a wanted person and charged for violating the capital markets act.
An arrest warrant for him was issued back in September, as well as an Interpol red notice.
It is largely believed that Kwon has fled Singapore and is currently in Europe, according to the Korean broadcasting system.
The crash of Terra has also caused Singaporean authorities to reconsider its regulations for cryptocurrency trading.
You can watch this video to know more about the proposed rules:
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