‘I Won’t Tell if You Don’t’ — SEC Unearths Alleged Scheme by Do Kwon to Fabricate Terra Transactions

In the wake of the U.S. Securities and Exchange Commission’s (SEC) call to depose Terraform Labs creator and former CEO Do Kwon, the SEC unveiled an alleged exchange between him and his former associate Daniel Shin. The ex-Terra boss reportedly claimed he could fabricate transactions on the Terra blockchain to render them authentic and accrue fees, further penning that he could strive to render the doctored transactions “indiscernible.”

‘I Can Just Create Fake Transactions’ — SEC Publishes Leaked Chat Between Kwon and Shin

Court filings submitted by the SEC show a purported conversation between the Terraform Labs founder and former CEO Do Kwon and his business partner the former CEO of Chai, Daniel Shin. “Kwon perpetrated a scheme to fabricate Chai transactions on the Terraform blockchain to make it appear more active, all to dupe investors,” the SEC filing claims.

The U.S. securities regulator added:

For instance, in an extensive private chat between Kwon and Daniel Shin2 during the early stages of Chai and Terraform’s formation and partnership, Kwon details how he intended to use Chai to create fake transactions on the Terra blockchain, which would appear real and generate fees.

The alliance forged between Terra and Chai sparked considerable excitement upon its unveiling on June 11, 2019, with the company elucidating that the pact ushered Terra into South Korea’s TMON, a bustling e-commerce hub retailing a vast array of products from electronics and fashion to home decor and gifts.

The conversation allegedly held between Kwon and Shin, marked May 9, 2019, sees Kwon purportedly saying, “I can just create fake transactions that look real, which will generate fees.”

Within the disclosed dialogue, Shin probes the likelihood of discovery concerning the authenticity of these transactions. Answering the query, Kwon allegedly affirms, “I will try my best to make it indiscernible.”

Subsequent to persuading Shin into endorsing the scheme under a veil of confidentiality — a pact sealed with a playful ‘I won’t tell if you don’t,’ Shin seemingly proposes a smaller-scale trial to “see what happens.”

Recently, following the SEC’s initiative to depose Kwon, his legal representatives outlined the task as “impossible,” spotlighting his detention in Montenegro. The SEC’s legal team contests the stance of Kwon’s counsel, emphasizing the necessity of his interrogation.

“Currently, the SEC is being denied its fundamental right to gather the relevant facts because it has not had an opportunity to depose the most critical witness in this case, who has, through counsel, actively conducted his own discovery from the SEC and third parties,” the SEC document articulates.

The peculiar entanglement between Terra and Chai garnered speculation in the aftermath of the ecosystem’s downfall. Adding fuel to the fire, a whistleblower going by the alias “Fatman” unveiled a thread alleging Kwon morphed Chai into his “personal money laundering machine.”

“All he had to do was create the illusion of retail demand and then publicize the narrative that KRT was being used everywhere,” penned the whistleblower on May 28, 2022.

What do you think about the alleged conversation between Shin and Kwon? Share your thoughts and opinions about this subject in the comments section below.