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Can Luna’s unruly founder go to jail after a $60 billion crash?

Do Kwon, the 30-year-old Korean founder of a $60 billion stablecoin project, has the ability to convince investors of what he is developing. Most recently, Kwon sold his “vision” for a new kind of payment system that would replace the world’s currencies.

TerraUSD (UST) and the Luna coin are the protagonists of this project. UST is a USD-pegged stablecoin and is targeted to replace financial transactions with conventional fiat currencies in the world. This plan has helped Luna maintain its anchor and attract many investors because its value is appreciated. In addition, they can also profit from the price difference of UST and Luna.

What Kwon is most interested in in this project is probably “pumping”. He was once considered the next generation Satoshi Nakamoto – the “father” of Bitcoin, and a little bit of an unruly billionaire Elon Musk. Promising a 20% profit, Kwon raised $207 million for Terraform Labs and made impolite statements on Twitter, criticizing Luna’s non-supporters as “poor”.

Now, both of these tokens are worthless. This collapse had no small impact when it caused the entire cryptocurrency market to plunge, wiping out half a trillion dollars in market capitalization. In addition, investor confidence was also shaken after this incident.

Even so, Kwon is still planning to launch his own digital currency, but this time the investor “turns away” from him. Meanwhile, the government will probably pay attention to this case.

Can Luna's unruly founder go to jail after a $60 billion crash?  - Photo 1.

Possibility of fines or jail time

A spokesperson for Terraform Labs declined to comment on civil or criminal proceedings facing the company or Kwon. But former federal prosecutors and regulators told CNBC that the consequences of the stablecoin’s collapse could be penalties for Kwon.

In the US, it is not a crime for a businessman or executive to misjudge a project. In Kwon’s case, prosecutors will have to prove that Kwon or his associates engaged in criminal fraud and need proof that the defendant defrauded investors.

Randall Eliason, who has 12 years of experience as an assistant attorney in Washington, explains: “This is like a murder case where you bring a witness to testify for the perpetrator. It will take a long time, including reviewing a lot of documents and talking to a lot of people and their attorneys, arranging jury time and appearing in court.”

According to Renato Mariotti, a former federal prosecutor and trial attorney who represents many clients in securities-related complaints, even if prosecutors can show that defendants false report, they must also prove that the defendant did not hesitate to do so. This process must be done by checking email or text messages to map out the phishing scheme.”

Eliason gives the example of Elizabeth Holmes of Theranos. This company uses another company’s machine to test the blood, but tells the investor that the product is manufactured by them. Such factors clearly demonstrate the intent of fraud, he said.

Meanwhile, similar cases take months or even years to resolve and have quite severe sentences.

Stefan Qin, the founder of a $90 billion crypto hedge fund in Australia, has been sentenced to more than seven years in prison, after he pleaded guilty to securities fraud. Roger Nils-Jonas Karlsson – a Swedish citizen, was accused by the US of defrauding more than 3,500 victims of more than 16 million USD and was sentenced to 15 years in prison for securities fraud, money transfer fraud and money laundering.

A group of Korean investors has filed a lawsuit against Kwon and the co-founder of Terraform Labs on two counts including fraud. Penalties for this company can include issuing orders, adjustments (returns) or fines based on investor losses – tens of billions of dollars in Terreform’s case.

In other countries, Kwon may also have to receive a fine in South Korea – where he lives and runs the business at the Singapore headquarters. Currently, Seoul is being more flexible with respect to the jurisdiction mechanism, as the country’s tax authorities are said to have asked Kwon and Terraform Labs to pay $80 million (100 billion won) in taxes. Against this backdrop, Terraform Labs is losing a number of attorneys after its legal department was reportedly laid off following the collapse.

Plan to “revive Luna”

Ever since Luna fell, Kwon has remained determined to pursue his ambitions. Within days of the disaster, he scrapped the UST and relaunched the new token. A company spokesperson said it had tweaked some technical elements and announced the change with plans to “revive Luna”.

According to CoinMarketCap, the newly listed Luna coin is currently losing more than 10% in value in the last 24 hours. However, this plan still receives great support from many famous investors. If Luna 2.0 is successful, the losses of institutional and retail investors can be offset.

The funds backing this new project feature well-known names in the venture capital space, including Lightspeed Venture Partners and Coinbase Ventures. Three Arrows Capital and Jump Crypto also bought Luna. Binance and FTX have so far also publicly supported Kwon’s new plan. When Binance put Luna 2.0 on the exchange on Tuesday, the coin surged in price by 90%.

Check out CNBC

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