Feds Reportedly Looking Into Possible SBF's Involvement In Terra Collapse; Kwon Weighs In

U.S. federal prosecutors are reportedly looking into the possible involvement of FTX founder and former CEO Sam Bankman-Fried in the controversial collapse of the algorithmic stablecoin TerraUSD (UST), and Terra's native token LUNA.

A new report from the New York Times highlights that Terra and FTX may have something in common.

U.S. prosecutors in Manhattan launched an investigation to determine if Bankman-Fried tried to manipulate the prices of the interlinked cryptocurrencies UST and LUNA to benefit his entities - FTX and Alameda Research - that led to the spectacular collapse of Terra in May, which wiped out billions in investment.

The said investigation is part of the broader inquiry into the FTX fiasco.

Days before the collapse of the Terra empire, major crypto market makers reportedly noticed a flood of sell orders in small denominations for TerraUSD. The surprising surge in sell orders for UST overwhelmed the system and made it hard for market makers to find matching buy orders.

Since sell orders that were left unfulfilled for too long would be matched with buy orders at a much lower price, it forced the price of TerraUSD down. And because UST and LUNA were linked, as a domino effect, the price of Terra's native token also plummeted.

Authorities are still investigating the reason behind the collapse of Terra cryptocurrencies.

Interestingly, the report said that the bulk of these sell orders that flooded at the time came from Bankman-Fried's crypto derivatives exchange platform, which, according to a person with knowledge of the market activity, placed a huge bet on the price of LUNA.

The tumble in the price of LUNA could have benefited Bankman-Fried, allowing him to take a massive profit. But unfortunately, that was not how the Terra story turned out.

Instead of a profit, the Terra collapse wreaked havoc in the cryptocurrency industry and sent big names in the business to file for bankruptcy. Reportedly, the shockwave of the LUNA crash contributed to the collapse of Bankman-Fried's crypto empire.

Bankman Fried told New York Times that he was "not aware of any market manipulation and certainly never intended to engage in market manipulation."

"To the best of my knowledge, all transactions were for investment or hedging," he added.

Responding to the latest report, Do Kwon, the co-founder and CEO of Terraform Labs that developed the algorithmic stablecoin TerraUSD, shared his thoughts on Twitter, Thursday.

"This is fairly public knowledge at this point, but the large currency contraction that UST went through in Feb 2021 was started by Alameda when they sold 500mm UST in minutes to drain its curve pools during the MIM crisis," Kwon said.

"What's done in darkness will come to light," the crypto executive wrote in another tweet.

International Business Times reached out to Terraform Labs, outside of office hours, for its official comment on the report and hasn't received a response yet. The article will be updated accordingly.