Justice Department Investigating TerraUSD Stablecoin Collapse: Reports

The investigations follow the filing of the SEC’s civil fraud lawsuit against Terraform Labs and Do Kwon last month.

AccessTimeIconMar 13, 2023 at 10:18 p.m. UTC
Updated Mar 14, 2023 at 3:52 p.m. UTC

The U.S. Justice Department is probing last year’s collapse of the terraUSD (UST) stablecoin, raising the possibility of criminal charges being filed against the stablecoin’s creator, Do Kwon, according to the Wall Street Journal, citing people familiar with the matter.

The FBI and the Southern District of New York have interviewed former employees of Terraform Labs, the company behind terraUSD, and sought to interview others, according to the Journal.

The Securities and Exchange Commission filed a civil fraud lawsuit in February against Kwon and Terraform Labs in federal court in New York, accusing them of misleading investors about terraUSD’s risks. The Justice Department’s investigation covers similar ground, according to the Journal’s sources.

Federal prosecutors are also examining chat-group discussions among prominent trading firms Jump Trading Group, Jane Street Group and failed FTX affiliate Alameda Research involving a potential bailout of terraUSD, according to a separate report from Bloomberg, citing a person familiar with the matter.

Such a bailout never took place, but the investigation is seeking to determine whether the firms were involved in possible market manipulation. TerraUSD and its sister token, luna, both eventually collapsed, setting off a series of high-profile failures of prominent crypto firms, including hedge fund Three Arrows capital, Voyager Digital and FTX.

The Department of Justice previously alleged that an unnamed crypto firmbelieved to be Jump – had bailed out terraUSD once before, in an indictment against FTX founder Sam Bankman-Fried.

The Justice Department declined to comment.

UPDATE (March 13 22:28 UTC): Updated with additional background.


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