Workers at embattled crypto operator Terraform Labs put on South Korea’s no-fly list

South Korean prosecutors have banned Terraform Labs employees from leaving the country as an investigation into the company and its co-founders deepens after the $40bn implosion of its cryptocurrency.

The Seoul Southern District Prosecutors Office told the Financial Times on Tuesday that the travel ban had been imposed on “dozens” of former and current Terraform Labs employees, declining to give further details.

The sudden collapse of terraUSD, a stablecoin, and its accompanying token luna in mid-May sparked chaos in cryptocurrency markets, as companies across the sector faced financial pressure from a sell-off in digital assets.

The price of bitcoin, the world’s most actively traded cryptocurrency, fell below $20,000 over the weekend for the first time since November 2020. Bitcoin was trading in Asia on Tuesday at $20,442, according to data from CryptoCompare.

South Korea’s no-fly ban on Terraform Labs came after a special financial crimes unit under the prosecutors’ office launched an investigation last month into two collective complaints filed on behalf of a total of 81 investors. The investors alleged that “Terraform founders and the company deceived investors with their flawed algorithmic coins”, according to the documents.

Daniel Hong, an ex-employee of Terraform Labs, wrote on Twitter that he was unable to fly to New York as a result of the travel ban. “People being treated as potential criminals like this is absolutely outrageous and unacceptable,” he said, adding that “anyone who [was] willing to co-operate would no longer want to after this madness”.

tbh people being treated as potential criminals like this is absolutely outrageous and unacceptable

bet anyone who were willing to cooperate would no longer want to after this madness

— Daniel Hong 🪄 (@unifiedh) June 20, 2022

Financial authorities around the world are working to tighten regulation of the crypto market following the implosion of terraUSD and luna, which were developed by Do Kwon, Terraform Labs’ 30-year-old co-founder.

Following the terraUSD meltdown, crypto exchanges in Seoul formed a consultative body to ensure regulatory compliance and strengthen investor protections.

Kwon’s legal problems extend beyond South Korea. A US court has ordered him to comply with subpoenas from the Securities and Exchange Commission regarding the sale of potential unregistered securities.

The SEC is seeking information on Mirror Protocol, a trading network built on the Terra ecosystem that offered customers tokens closely tracking the price of some of the largest listed companies in the US, such as Apple and Amazon.

In northern California, a class-action lawsuit was filed this month in which plaintiffs accused Kwon and his company of selling unregistered securities and misleading investors by “repeatedly touting the stability of UST”.