Evidence of Deceiving Investors Since Early Operations
Conversation records suggesting that Kwon Do-hyung, a key figure in the cryptocurrency 'Terra·Luna' crash incident, intended to deceive investors from the early days of operating Terraform Labs have been submitted to the court.
According to the legal community on the 17th, the Financial and Securities Crime Joint Investigation Division of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Gong Jun-hyeok) submitted an opinion letter containing such content on the 10th to the first trial court of former Chai Corporation CEO Shin Hyun-sung, the Criminal Division 14 of the Seoul Southern District Court (Presiding Judge Jang Seong-hoon). Shin was indicted as an accomplice of Kwon.
The opinion letter included messenger conversations between Kwon and Shin in May 2019 regarding the simple payment application (app) 'Chai'. Kwon told Shin in English, "I can just create fake transactions that look real. If Chai grows, we can reduce (the fake transactions)," adding, "I'll make it so you can't tell." Shin responded, "Let's test it on a small scale and see how it goes," to which Kwon replied, "Got it."
The prosecution views this as evidence that Kwon and Shin intentionally manipulated Terra-related transactions from the early stages of the business to deceive investors. They allegedly aimed to inflate transaction volumes through false trades to attract investors and expand the business.
On the other hand, Shin and others denied the fraudulent nature in court, claiming that the cause of the Terra·Luna crash was due to Kwon's reckless management and external attacks, thus denying the charges.
This conversation was also submitted to the civil lawsuit jury of the U.S. District Court for the Southern District of New York, where the U.S. Securities and Exchange Commission (SEC) acknowledged Kwon's fraudulent acts in April.
Earlier, in 2021, the SEC filed a civil lawsuit against Kwon and Terraform Labs, accusing them of deceiving investors about Terra's stability and causing massive losses. Recently, following a jury verdict recognizing Kwon's charges, Kwon's side agreed to pay restitution and fines amounting to $4.47 billion (approximately 6.1 trillion KRW).
Kwon fled Korea in April 2022, just before the Terra·Luna crash, and was arrested last March in Montenegro on charges of passport forgery. He is currently detained there.
Meanwhile, on the same day, Shin's legal representatives explained that Kwon's remarks were merely jokes and that no actual 'fake transactions' occurred.
Shin's side stated, "In the early stages of the project, the transaction volume on the Terra blockchain was not large, causing an issue where validators, who receive part of the transaction fees as compensation for maintaining the blockchain network's stability, were not sufficiently rewarded. The problematic remarks arose during discussions between Kwon and Shin about this issue," adding, "Although Kwon's remarks were inappropriate, they were made jokingly and no actual fake transactions occurred."
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