Seoul, South Korea — South Korean prosecutors have blocked dozens of people linked to Terraform Labs from leaving the country as they expand an investigation into a $40 billion collapse of the company’s cryptocurrency that devastated merchants around the world.
Prosecutors for Seoul’s southern district said Wednesday they plan to subpoena them to determine whether the company engaged in fraud or breached financial regulations before the implosion of its TerraUSD and Luna digital currencies in May.
The office did not specify the number of people placed under the month-long travel ban or who they are, although they may include current and former employees and developers. The prosecutor’s office refused to give further details because the investigation was still ongoing.
Daniel Hong, a former Terraform developer, tweeted a government notice showing he was banned from leaving the country until July 19. Hong tweeted, “Stop asking me why I couldn’t make it to NYC Frens, here’s why: the Korean government today imposed a travel ban on all [email protected]—money employees.”
Developed by Stanford-educated Terraform Lab co-founder Do Kwon, the collapse of TerraUSD and Luna affected an estimated 280,000 South Korean investors while also causing broader turmoil in the global cryptocurrency market.
TerraUSD was designed as a “stablecoin” pegged to stable assets like the US dollar to prevent drastic price swings. However, the market value of around $40 billion was erased for holders of TerraUSD and its floating sister currency Luna after the stablecoin fell well below its $1 peg in May.
South Korean prosecutors launched the investigation last month after dozens of investigators filed class-action lawsuits. They could try to subpoena Kwon, who is reportedly in Singapore and accused of exaggerating the stability of his currencies.
The Bank of Korea, South Korea’s central bank, said in a report released earlier this month that the collapse of TerraUSD and Luna was a major factor in the global foreign exchange market shrinking more than 40% compared to market value at the end of last year, which reached about 2 $.3 trillion. The US Federal Reserve’s recent decision to raise interest rates to combat inflation also contributed to the slide by further deterring investors from volatile assets, the bank said.