SEC Whistleblower Reveals Chai Payments App in Terra Ecosystem Didn’t Use Crypto
Four crypto tokens sold by Do Kwon and his co-founded company, Terraform Labs, has been qualified as unregistered securities.
The tokens in question are TerraUSD (UST), LUNA, wLUNA, and Mirror Protocol (MIR), according to a recent summary judgment ruling by Judge Jed Rakoff of the U.S. Court for the Southern District of New York.
However, the ruling favored the defendants on one charge, dismissing the notion that Terra’s Mirror Protocol “mAssets” constituted security-based swaps.
One significant revelation from the ruling pertains to the Chai payments platform, which Kwon frequently highlighted as a real-world use case of the Terra blockchain for promotional purposes.
Judge Rakoff presented evidence brought forth by the SEC, indicating that the Chai platform did not operate on the Terra blockchain as claimed.
Instead, payments were purportedly settled using traditional methods and then “mirrored” on the Terra blockchain through a server under Kwon’s control.
The evidence includes an email from a Chai employee in May 2020, stating that Chai would process transactions outside the blockchain and only write a record on the Terra blockchain in parallel.
Additionally, a whistleblower, who served as Chai’s Chief Product Officer, disclosed that a former Terraform employee who joined Chai had informed them that “there’s no crypto going on within Chai.”
The whistleblower claims to have confronted Kwon about Chai’s true nature in September 2021, to which Kwon allegedly responded by expressing indifference towards Chai.
Although the evidence appears compelling, Judge Rakoff acknowledged that genuine disputes of material fact remain, preventing any party from being granted summary judgment on the fraud claims.
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