Do Kwon, Daniel Shin Agreed To Falsify Trading Volumes 'On A Small Scale,' SEC Claims

More allegations surrounding the collapse of the Terra ecosystem, specifically against its founder Do Kwon, recently surfaced online as the U.S. Securities and Exchange Commission (SEC) presented a new set of documents, highlighting that the crypto entrepreneur admitted to faking trading volumes.

In its pursuit of protecting investors and making people allegedly responsible for the spectacular collapse of the Terra ecosystem that wiped billions in investments, the SEC, on Sept. 22, filed several documents in the court, and one of the documents contains the alleged conversation between Kwon and Terraform Labs co-founder Daniel Shin.

The SEC described the conversation as an "extensive private chat" and said it highlighted that during the "early stages" of Chai and Terraform Labs' "formation and partnership," Kwon shared with Shin, the CEO of the payments app called Chai, the details on how he intended to use Chai to make "fake transactions on the Terra blockchain which would appear real and generate fees."

During the chat, Shin raised the question, "Wouldn't people find out it's fake?" However, Kwon played down his concern and assured him that he would "make it difficult for anyone to discover the fraud."

Ultimately, both Shin and Kwon agreed to test the plan out on a "small scale."

While the extent to which the Terraform Labs co-founders falsified data in practice is still unclear, the relationship between Chai and TFL ended in 2020.

Despite this, the controversial partnership has been the subject of many speculations, especially since many alleged that it continued even after Shin left, with the SEC claiming that some significant Chai transactions were carried out on Terra's blockchain.

"Kwon and Terraform grew this Chai fraud and ultimately lured unwitting investors into parting with billions of dollars," the U.S. financial regulator alleged in the Amended Complaint.

The SEC included the conversation between Kwon and Shin in the documents filed in court as part of its efforts to depose the TFL CEO in the United States.

Kwon's legal team immediately petitioned the financial regulator's request to depose Kwon, who is currently in Montenegro for possession of fake travel documents.

"The Court should deny the SEC's motion for the simple reason that it is currently impossible for Mr. Kwon to appear for a deposition in the United States," Kwon's lawyers said, adding, "An order mandating something that is impossible serves no practical purpose and risks undermining judicial authority because the Court could not mandate compliance."

Kwon's lawyers also told the court that the crypto executive does not directly oppose a deposition, but insisted that it should take place in Montenegro, where the South Korean crypto mogul is currently out on bail.