Employees of Terraform Labs have reportedly told the Securities and Exchange Commission that Do Kwon, the company's co-founder and CEO, was cashing out $80 million a month prior to the crash of the UST and Luna tokens.
The search engine Naver, citing South Korean television network JTBC, said the SEC "recently conducted a remote video survey of some of Terra's key designers and focused on inquiring about Terra's poor design structure."
'They Were Ignored'
Terraform Labs is the developer of the Terra blockchain network.
The designers said they "predicted the collapse of Terra and Luna and pointed out the danger to CEO Kwon Do-hyung several times, but they were ignored."
The SEC reportedly found that about 100 billion won, or $78.1 billion, of company funds went out every month for operating expenses a few months before Terra collapsed.
The SEC has secured internal statements that "the funds flowed into dozens of cryptocurrency wallets," JTBC reported.
A designer said that Kwon "has not officially received any payment from the company. There is no token set for him."
The SEC did not immediately respond to a request for comment.
Meanwhile, the SEC is investigating whether the marketing of UST before it crashed violated federal investor protection regulations, according to Bloomberg.
'No Intention of Deception'
Investigators in Seoul, South Korea, are also reportedly investigating Terraform Labs.
The Financial Times reported that the company held $3.5 billion worth of bitcoin in its reserves in a failed attempt to stabilize the price of UST.
Daniel Shin, a co-founder of Terraform Labs, said there was "no intention of deception" and that the company wanted to innovate the payment settlement system using blockchain technology.
"There's a lot of misinformation and falsehood out there, and we promise to do our part in making sure as much of it is correct as possible," Kwon tweeted on June 9.
TerraUSD, or UST, and its sister token, Luna, crashed after UST lost its peg to the dollar, the foundation of it qualifying as a stablecoin, which is a cryptocurrency tied to a more stable asset like the U.S. dollar or gold.
From May 9 to May 13, at least $55 billion of market cap disappeared, causing colossal losses to many investors.
At the time, Do Kwon urged players to "sit tight" as its designers formulated a rescue plan.
'Weather This Crisis'
"I understand the last 72 hours have been extremely tough on all of you - know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this. Together." Kwon said on Twitter.
UST is an algorithmic stablecoin, which is backed not by dollar reserves but rather by its sister asset Luna, which had to be burned, or permanently destroyed, through a computer code.
Luna and UST were delisted by crypto exchanges Binance and OKX in an effort to protect their customers.
Algorithmic stablecoins are different from centralized alternatives like tether (USDT) or USD coin (USDC), which are backed by actual dollars or equivalent assets stored in a bank.
U.S. Treasury Secretary Janet Yellen pushed for stablecoin regulation last month during while testifying before the Senate Banking Committee.
Separately, a federal appeals court on June 8 ordered Kwon and Terraform Labs to comply with an SEC investigation into the company's Mirror Protocol.
Mirror Protocol is a decentralized finance platform that enables users to issue synthetic assets, which are crypto tokens that track the price of real-world assets, such as stocks.
'Getting the Right Information Out There'
The Second Circuit Court of Appeals in New York City upheld a lower court's ruling February and said that Kwon and Terraform Labs must hand over documents related to Mirror Protocol.
The ruling said that the subpoenas were served as part of an SEC investigation into "whether appellants violated federal securities laws in their participation in the creation, promotion, and offer to sell various digital assets related to the 'Mirror Protocol.'”
Kwon had claimed that the SEC violated its rules by delivering the subpoena to him personally, instead of his counsel. In addition, the appeal argued that Kwon's company lacked a sufficient presence within U.S. markets.
The appeals court upheld the lower court's ruling
Despite reaching an agreement with the SEC, the ruling said Kwon and Terraform Labs, "failed to answer questions related to their digital assets and did not commit to complying with the SEC's documents requests," the ruling said.
Late last month, Kwon proposed a new chain to replace the existing Terra network, while Luna 2.0 will replace the existing version of Luna, which will be renamed Luna Classic.
"While most of our efforts had been spent on Terra 2.0 and making sure ecosystem developers can find a home after the depeg incident, we will soon be more proactive in communicating with the press & getting the right information out there," Kwon tweeted on June 9.
