Skip to content

South Korean Authorities File $78.5 Mn Lawsuit Against Terraform Labs

Do Kwon is facing a class-action lawsuit of $78.5 million for corporate and income tax evasion by South Korean authorities.

Terraform Labs, the parent company of stablecoins, Terra LUNA and TerraUSD/UST, is under severe scrutiny by the South Korean National Tax Service for tax evasion following the collapse of the cryptocurrencies. According to reports from news outlet Naver, the country’s tax authorities found Terra’s parent companies — The Ancore Company and Terraform Labs — guilty of corporate and income tax evasion and have ordered Terra’s founder Do Kwon to pay 100 billion Won ($75.5 million) in taxes.

A week ago, TerraUSD/UST lost its peg and plummeted by 40% resulting in Terra LUNA declining by 100%, thereby wiping out holders’ wealth. This collapse had a severe impact on the overall cryptocurrency ecosystem as Luna Foundation Guard (LFG) dumped its reserves from other cryptocurrencies in the market in order to save their native tokens. Luna Foundation Guard is a non-profit organization established in Singapore by Terraform Labs and the second-largest holder of Bitcoin.

Mr. Kwon reportedly holds a whopping 92% stake in Terra Singapore, while the other 8% belongs to Shin Hyun-Seong, the chairman of the company.

In October 2021, the National Tax Service ordered Terra Virgin — the wholly-owned subsidiary of Terra Singapore — to pay 4.66 billion Won in income tax charges.

South Korean Government and the National Assembly Actively Investigating Terra Case

The report also highlighted that Han Dong-hoon, the Minister of Justice of South Korea, is actively involved in the scrutiny.

In addition, South Korean authorities have also resurrected Yeouido Grim Reaper, a special joint financial and securities crime investigation unit, following more than 2 years of inactivity, to investigate Terra. The entire scenario gets messy as official documents reveal that Mr. Kwon has liquidated his domestic holdings days before the catastrophic crash of TerraUSD and Terra LUNA. Reports suggest that Mr. Kwon was not satisfied with the country’s tax policies and was making an attempt to shift base to Singapore to evade tax.

The country’s authorities are actively investigating the case as more than 280,000 residents of South Korea have lost their earnings in the Terra collapse and more than 8 individuals have committed suicide because of the loss.

Reports also state that the National Assembly plans to strengthen crypto regulations, going beyond the Capital Market Act with stricter penalties. Moreover, profits gained from illegal trading, wash trading, crypto price manipulation, insider trading, and crypto pumps and dumps will lead to civil penalties and criminal imprisonment. As per the Virtual property Industry Act, foreign crypto companies will have to adhere to a new licensing regime. Under this Act, companies such as Terraform Labs and its subsidiaries would be subjected to national guidelines.

In terms of crypto prices, Terra LUNA has now declined by 20.26% and is trading at a mere $0.0001469 as of this writing. The current price of Bitcoin stands at $23,970 per (BTC/USD), a light change of 1.13% over the last 24 hours, according to Coindesk. Last week, Bitcoin’s price fell to an all-time low of $26,350 following the collapse of TerraUSD/UST. On the other hand, Ethereum (ETH), the second-largest cryptocurrency token by market capitalization — declined by 7% to $1,900 in the last 24 hours. The report also suggests that Bitcoin acquired and sold by the LFG may face tax charges.

With Mr.Kwon’s new plan to bring Terra LUNA back from the dead, only time will say if the stablecoin will actually regain its position.