US Department of Justice launches investigation into Terra stablecoin

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TerraUSD (UST) was an algorithmic stablecoin that completely imploded in May 2022. It lost its peg to the US dollar and also took the value of Terra (LUNA) with it. Both the stablecoin and the LUNA token fell to zero, causing billions in assets to go up in smoke.

Now, more than nine months later, the Wall Street Journal (WSJ) reports on the basis of anonymous sources that the US Department of Justice has now set its sights on the crypto project.

Lawsuit with the SEC

Terraform Labs and its former CEO Do Hyeong Kwon are already facing charges filed last month by the Securities and Exchange Commission (SEC). If charges are eventually also filed by the Ministry of Justice, they are criminal and a prison sentence is lurking.

The SEC has filed a lawsuit against the company and co-founder Do Kwon and wants investors reimbursed. In this lawsuit, the SEC seeks to demonstrate that TerraUSD should have been registered as a security. Terraform Labs would also have falsely convinced investors that the stablecoin was safe and the peg, or peg, with the US dollar. In addition, the regulator wants Do Kwon to be banned from ever selling and issuing crypto, which the SEC considers to be securities.

Research on Terra stablecoin

The Justice Department’s investigation covers similar areas to the SEC lawsuit. The Federal Bureau of Investigation (FBI) and the Southern District of New York have reportedly questioned former team members behind the stablecoin in recent weeks.

The WSJ also reports that researchers asked about the relationship between Chai, a Korean payment company, and the blockchain Terraform created to power TerraUSD. Kwon and his team claimed that Chai used the blockchain to complete millions of transactions. However, the SEC claimed in February that this was a complete fabrication.

Bloomberg also reported on Monday that US prosecutors are also investigating chat group conversations between trading firms including Jump Trading Group, Alameda Research and Jane Street Group about a possible UST bailout that ultimately never happened.

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