Kwon Do-hyung, CEO of Terraform Labs, who was arrested in Montenegro, was found by the U.S. prosecutors' investigation to have colluded with an American investment firm to manipulate the price of the coin one year before the 'Terra·Luna crash' incident.
According to the indictment filed on the 24th (local time) by the U.S. Attorney's Office for the Southern District of New York, charging CEO Kwon with securities fraud and other charges, around May 2021, Kwon contacted representatives of an American investment firm to seek assistance in manipulating the price of the coin he created, TerraUSD (UST).
UST is a stablecoin designed to be pegged to 1 dollar (a cryptocurrency designed to be linked to fiat currencies such as the dollar), but at that time, the dollar peg of UST had broken, putting it in a difficult position.
The investment firm, referred to only as 'Firm-1' in the indictment, reportedly used trading strategies to manipulate the price of UST at Kwon's request, prosecutors revealed.
Although the prosecutors did not specify the exact methods used by this firm in the indictment, the U.S. Securities and Exchange Commission (SEC), which previously filed a lawsuit against CEO Kwon, stated in its complaint that the investment firm restored the price by purchasing large amounts of UST.
According to the SEC, from May 23 to 27, 2021, the firm used at least two or more cryptocurrency platforms to net purchase over 62 million UST, restoring the UST price to 1 dollar.
Just before that, around May 23, 2021, CEO Kwon agreed, as revealed through the prosecutors' investigation, to adjust existing debts between Terraform Labs and the investment firm as compensation for the price manipulation.
However, Terraform Labs concealed the fact of price manipulation and deceived investors by promoting the algorithmic structure that guarantees UST's price stability through social media.
Prosecutors pointed out that CEO Kwon himself made false claims that the algorithm guarantees UST's price stability not only on social media but also in interviews in March of the following year.
The prosecutors have indicted CEO Kwon on eight charges including securities fraud and are pursuing extradition.
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