The United States Department of Justice (DOJ) reportedly launched an investigation against Terraform Labs and its former employees to explore what led to the collapse of the project’s native token – LUNA – and its algorithmic stablecoin – UST.

The US SEC recently accused the entity and its co-founder – Do Kwon – of orchestrating a massive fraud, suggesting this could be the main factor behind the catastrophe. 

US DOJ Joins the Club

According to a Wall Street Journal coverage, the FBI and the Southern District of New York have started questioning former members of Terraform Labs to investigate the reasons that triggered the LUNA/UST crash in May last year. 

The US SEC filed charges against the organization and its co-creator – Do Kwon – earlier this year, claiming they ran a massive scam by offering and selling unregistered securities through the use of digital currencies. According to the agency, the scheme prompted severe financial losses for institutional and retail investors. 

It also accused Terraform Labs of making false statements that it was in a partnership with a leading Korean mobile payment application. The Commission added that Kwon allegedly aimed to drain customer funds and later use them for personal benefit.

If the investigations launched by the SEC and the DOJ determined that the blockchain entity and Do Kwon were guilty, this could lead to jail sentences for the South Korean developer and some of his former colleagues.