Will Terra Do Kwon be prosecuted for the collapse of his project: expert comments
The recent collapse of the Terra ecosystem has been one of the most significant disasters in the history of the crypto industry. Because of what happened, market capitalisation losses in just the last couple of weeks have been measured in literally hundreds of billions of dollars. Terra left behind thousands of investors with huge losses, so it’s not surprising that many have started comparing the creator of the Do Kwon ecosystem to common crooks. We tell you more about what’s going on.
Journalist David Morris drew such a parallel in an article on Coindesk. He compared Kwon with Theranos founder Elizabeth Holmes, who is currently on trial for fraud. Kwon will face a similar fate sooner or later, the author of the article believes. Here is his point of view.
What will happen to Do Kwon?
Like Holmes and her failed blood-testing startup, Kwon has tirelessly advertised a project that was “rotten to the core”, while responding to criticism with fury and bombast. One of his quotes was “I don’t argue with poor people”. Worse still, Kwon’s antics have not only hurt rich investors, as was the case with Theranos, but also tens of thousands of ordinary people.
Theranos creator Elizabeth Holmes
Kwon is clearly lacking in business ethics and perhaps plain modesty, but none of the above goes against the law. According to law professor and former prosecutor Randall Eliason, any criminal case would have to prove that Kwon committed fraud rather than engaged in reckless business management. And that’s pretty tough. Here’s his cue.
When hedge funds and other companies lose a lot of money, it doesn’t mean fraud has taken place. Prosecutors will need evidence that this is not a consequence of a bad idea or simply a failure.
In other words, even in this situation - despite the fact that investors have lost huge sums of money - this does not mean anything. The legal team will have to study the case thoroughly and, if necessary, make a lot of effort to convince the court of such a view.
Terra creator Do Kwon
Gathering such evidence is a difficult task, as would-be criminals are unlikely to set out their plans in something like an email. The expert continues.
Such emails are uncommon. Instead there is often an accumulation of many things and circumstantial evidence. You will not have the classic “smoking gun”, i.e. explicit evidence.
The reasons for a market crash may seem obvious in hindsight, but not in advance. And it underscores the fact that no one went to jail for the many rash decisions in the economy that led to the 2008 financial crisis. This of course does not mean that Kwon is one hundred percent likely to escape prosecution in the United States, the expert said.
The magnitude of Terra’s collapse, along with the “murky” transactions associated with the UST stackablecoin and LUNA token rescue efforts, means that law enforcement authorities are likely to investigate and may even find evidence. There is also the matter of the investment platform Anchor, which has promised a 20 per cent annual guaranteed return to its clients. These are very optimistic estimates on profitability, which is something really bordering on criminal.
Do Kwon will always be associated with this chart
At the very least we can expect regulators like the US Securities and Exchange Commission to “bombard” Kwon with everything they have in the form of fines and sanctions. It’s safe to say that Kwon will be barred from any securities-related activity in the US and that he won’t even set foot on US soil for the foreseeable future. That is exactly the prognosis analysts are making.
Even if US prosecutors cannot prosecute “on their turf”, it is within the power of a court in South Korea, where the Terra fiasco has prompted calls for a government investigation and a flood of civil suits. One of the lawyers involved in these proceedings told a Korean news outlet that Kwon “could be punished for fraud if it is proven that Terra’s Anchor protocol is a pyramid scheme”.
Kwon’s representatives declined to comment on the potential criminal liability of his boss. As a result, Terra’s founder himself is now almost backed into a corner. Even in the most optimistic scenario for him, Kwon would suffer a disproportionate blow to his reputation and is unlikely to create another project of this magnitude.
We think such a prognosis seems rather restrained, but justified. It looks like Kwon really won't get away with it. At least on Thursday it became known that the South Korean national tax agency wants to charge Terraform Labs and its founder with a $78 million fine for tax evasion. In addition, yesterday the South Seoul District Prosecutor's Office announced the launch of an investigation into Terraform Labs. Apparently, there will be more news on this soon - and in a judicial context, too.
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