The President of Jump Crypto, Kanav Kariya, has invoked his Fifth Amendment rights during questioning by the U.S. Securities and Exchange Commission (SEC) over allegations of a hidden market-making scheme involving Terraform Labs’ founder, Do Kwon. The scheme reportedly allowed Kariya’s company to profit over $1 billion.
Refusal to Elaborate on Agreement
When asked by SEC counsel, Devon Staren, if he had made an agreement with Kwon to purchase large amounts of UST (Terra’s stablecoin) in order to stabilize its value, Kariya refused to provide further details and invoked his Fifth Amendment rights. He stated, “Under instruction of counsel, I exercise my rights under the Fifth Amendment to answer the question at this time.”
“Under instruction of counsel, I exercise my rights under the Fifth Amendment to answer the question at this time.” – Kanav Kariya
The deal between Jump Crypto and Terraform Labs involved the purchase of significant quantities of UST in exchange for an amendment to Jump’s LUNA loan agreement. This amendment lifted the vesting conditions. The agreement was established on May 23, 2021, approximately two weeks after both UST and LUNA experienced instability on May 9th and May 12th, respectively. It was reported that Jump Crypto acquired LUNA coins valued at $90 for just $0.40.
Involvement in Luna Foundation Guard
Interestingly, Kariya was a member of the governing council for Luna Foundation Guard, an organization that ensured the Foundation’s activities were aligned with principles such as transparency, governance, and the advancement of research and development in open and decentralized networks.
The SEC brought the case against Do Kwon and Terraform Labs Pte. Ltd. in Manhattan federal court in February 2023. They are currently facing a civil fraud lawsuit for allegedly misleading investors and perpetrating a fraudulent scheme that resulted in substantial market value losses, including significant damage to U.S. retail and institutional investors.
SEC Alleges Misleading Statements
In the complaint filed in February, the SEC alleges that Kwon and Terraform repeatedly touted the restoration of the $1.00 peg of UST as an achievement of decentralization and the “automatic self-healing” algorithm of the UST/LUNA system. However, the SEC claims that they misleadingly omitted the actual reason behind the restoration of the peg, which was a third party’s intervention to stabilize the price of UST.
Request for Summary Judgment
The U.S. regulators have requested a summary judgment rather than a trial for this case. On the other hand, Kwon’s defense has argued that the SEC has failed to provide sufficient evidence of any violation of securities laws.
In June 2023, Kwon had an Interpol’s Red Notice issued for his arrest due to document forgery, and he was subsequently sentenced in Montenegro. If extradited to the U.S., Kwon would potentially be detained at the Metropolitan Detention Center in Brooklyn, New York, alongside recently convicted FTX founder, Sam Bankman-Fried.
