Author: Koiwa
Editor: Xiaolu
The "Luna flash crash incident" that once shocked the entire cryptocurrency circle has finally come to an end.
On June 14, the Southern District Court of New York approved the settlement agreement between the U.S. Securities and Exchange Commission (SEC) and the cryptocurrency company Terraform Labs and its CEO, Do Kwon, the main developer of Luna coin. According to the agreement, Do Kwon needs to pay a fine of $4.5 billion to the SEC, including $3.6 billion in fines and confiscations, $467 million in withholding interest, and $420 million in civil penalties. Do Kwon is jointly and severally liable for the above-mentioned $110 million in fines and confiscations and $14.3 million in estimated interest. After this, Do Kwon may also face a series of penalties including bans on business.
At this point, Luna’s collapse has come to a temporary end.
The former "cryptocurrency Moutai" has become a Ponzi scheme, and the SEC has been prosecuting it for a year and a half...
As usual, let us first understand the whole process of the following events.
Whether you are a newbie who has just entered the circle or an old investor who has been in the cryptocurrency circle for many years, you should have some impression of Luna, which is a phenomenal project that was once hailed as the "Moutai of the cryptocurrency circle."
When Luna was first launched, its price was only $0.12, but it rose to $119.5 in April 2022. But terrible things happened in May. Around May 12, Luna experienced a horrific cliff-like collapse, which caused a massive slaughter in the cryptocurrency circle. According to statistics from the trading website at the time, within just 24 hours, nearly 400,000 users had their positions liquidated due to Luna, with a single liquidation of up to $10 million. The total value of the liquidation was nearly $1 billion, or about 6.36 billion yuan evaporated.
As the saying goes, a single move can affect the entire body. The plunge of Luna even led to a decline in the entire crypto market. In just 6 days, the total market value of cryptocurrencies fell by $600 billion, and many large institutions went bankrupt. For this reason, some insiders compared the collapse caused by Luna to the financial crisis caused by the bankruptcy of Lehman Brothers in 2008.
In fact, Luna should not have been hyped up to such a high price at the beginning and worshipped as a god, but because too many people in the industry are obsessed with getting rich overnight, they fantasize that they can "make a lot of money out of thin air". Luna has always had potential risks, but many people either don't care about the risks or selectively ignore the risks, which eventually led to such a farce of collapse.
On September 19, 2022, South Korean prosecutors issued a red warrant for the founder of the cryptocurrency project Luna. The significance of the "red warrant" is that Interpol member countries can immediately arrest after receiving the red warrant. In February 2023, the SEC began to file a lawsuit against Terraform Labs and Kwon, accusing the company of defrauding Crypto asset investors, including through its now-defunct Terra USD (UST) stablecoin. In April this year, the court found the defendants liable for fraud.
The high-profile case was filed by the SEC in the U.S. District Court for the Southern District of New York, which issued a final judgment against Terraform Labs and its co-founder Do Kwon.
The high-profile case was filed by the SEC in the U.S. District Court for the Southern District of New York, which issued a final judgment against Terraform Labs and its co-founder Do Kwon.
The judgment found the defendants guilty of multiple securities law violations and imposed severe penalties and restrictions on their future activities, including a "biggest" penalty of approximately $4.5 billion in fines. In addition, Kwon must transfer various assets and properties to Terraform, including ownership interests in PYTH tokens and other assets. These assets will be used to pay fines and distributed to damaged investors through a liquidation trust. The order allows Terraform Labs to treat the payables as unsecured claims in its bankruptcy case, which means that the SEC will receive these funds according to the distribution priority after Terraform Labs' bankruptcy protection plan takes effect. The SEC has the right to use all authorized collection procedures to enforce the court's judgment, including the right to exercise civil contempt of court if Kwon fails to comply with the transfer order within 30 days of the judgment.
abs's payment responsibilities are separated, including $110 million in fines and forfeitures, $14.3 million in pretrial interest, and another $80 million in civil penalties. In addition, the court also permanently prohibited Terraform Labs and Kwon from trading unregistered securities, trading Crypto asset securities, or inducing others to trade Crypto asset securities; prohibiting any trading activities on its platform, and not allowing third parties to withdraw, unlock and close positions on its platform; permanently prohibiting Kwon from serving as an executive or director of any issuer with a registered securities class or reporting obligations.
So the question is, does accepting the above punishments mean that Do Kwon can rest easy?
Some lawyers pointed out that this kind of settlement in the US judicial system is equivalent to a settlement between the judicial authorities and the suspects, which is commonly known as "plea bargaining". At first glance, it is similar to the lenient system of confession and acceptance of guilt, but in essence, there is an essential difference between the two. The biggest difference is that in a plea bargain, after the fine is settled, the SEC may no longer prosecute the parties. Or even if it prosecutes, the sentence of the charges will be greatly reduced.
Former bigwigs have fallen one after another and become "prisoners". Is the heavy-handed regulatory crackdown intended to better regulate the cryptocurrency circle?
Former bigwigs have fallen one after another and become "prisoners". Is the heavy-handed regulatory crackdown intended to better regulate the cryptocurrency circle?
Who exactly is Do Kwon, who has stirred up such a mess in the cryptocurrency world?
Do Kwon was born in Seoul, South Korea in 1991. He is one of the founders of Terraform Labs. In April 2019, Terraform Labs launched the Terra project. UST is a decentralized algorithmic stablecoin issued on the Terra chain, pegged to the US dollar, and Luna is the native token of the Terra project. UST uses a simple "minting and burning" mechanism to maintain stability. To mint UST, an equal amount of Luna must be destroyed. Similarly, users can also redeem an equal amount of Luna by destroying UST.
In the top 5, in April 2022 (one month before its collapse), Luna's price reached a high of $119, with a market value of more than $41 billion. Needless to say, UST was once the third largest stablecoin in the virtual currency market. At its peak, its total circulation value was second only to the old legal currency stablecoins USDT and USDC.
But starting in April 2022, Luna’s price plummeted from a high of $119.55 to $0.23, almost to zero. In just one month, it fell from its peak into a “death spiral,” wiping out nearly $45 billion in market value in a week. In May, UST also began to break free and began to collapse, with its total value plummeting.
The collapse of Luna and UST created a domino effect, triggering an overall decline in the crypto industry. Bitcoin and Ethereum were not spared, with declines once approaching 15% and 20%.
In addition to Kwon, Binance’s founder and former CEO was also prosecuted by the SEC. Not only did he have to plead guilty and accept punishment, he also faced imprisonment.
On June 5, 2023, the SEC officially announced that the SEC officially sued Binance, the world's largest cryptocurrency exchange, and Binance founder and CEO Changpeng Zhao for violating U.S. federal securities laws. According to the lawsuit, the SEC believes that Binance, Binance US, and Changpeng Zhao provide unregistered securities to the public in the form of BNB tokens and BUSD stablecoins pegged to Binance, and also accuses Binance of violating securities laws with its pledge services. BAM Trading (the operating company of Binance US) and Binance itself also face similar charges, including failure to register as a clearing agency, failure to register as a broker, and failure to register as an exchange. In addition, the SEC also accused Binance of allowing the mixing of customer funds, Changpeng Zhao of "secretly" controlling Binance US, and Changpeng Zhao of exaggerating Binance US's trading volume.
The lawsuit was apparently long in the making, with the SEC publishing a detailed 136-page complaint outlining similarities between Binance’s alleged behavior and that of its failed competitor FTX. The complaint includes testimony from former senior Binance US executives, two former CEOs, and some of Binance’s internal communications.
When the news first broke on social media, Binance founder Zhao Changpeng was able to comment that "this is an attack on the entire industry." But as of now, it is clear that the SEC has become the final winner.
In the end, US Judge Richard Jones sentenced Zhao Changpeng to 4 months in prison because he "voluntarily surrendered, was willing to take responsibility, and had no criminal record." In addition, he had a large number of industry professionals, crypto communities, and family and friends who supported the court. The final sentence for Zhao Changpeng was much lower than the prosecution's request. According to the latest news, Zhao Changpeng has entered a California prison on June 1. Interestingly, while Zhao Changpeng was in prison, the price of Binance Coin did not fall but rose. His net worth soared by 4.1 billion US dollars. The US media even called him "the richest prisoner in the United States."
Will Don Kwon follow Zhao Changpeng's "trial path" again? We still need to wait and see.