Terraform Labs, the parent company behind the collapsed Terra ecosystem, is currently under investigation by South Korean authorities.

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The latest investigation revolves around the alleged theft of Bitcoin (BTC) from the company’s treasury. According to report Published in a local daily newspaper, the Seoul Metropolitan Police Department last month received intelligence information about a possible theft of BTC by one of the firm’s employees.

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The police said the investigation into the alleged embezzlement of BTC from the company’s treasury is not directly related to corrupted co-founder Do Kwon, and they are currently investigating separate embezzlement allegations.

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The authorities managed to freeze the stolen funds with the help of a crypto exchange until the investigation is completed. However, the amount of stolen funds was not disclosed.

The Luna Foundation Guard (LFG), a fund created by a company that owned more than $3 billion in bitcoin reserves, became the focus of attention after the crash. The BTC fund was used to balance the algorithmic stablecoin Terra USD (UST). The firm said that all of its BTC reserves were used in a futile attempt to stabilize UST.

In a recent interview Terraform Labs co-founder Daniel Shin denied any allegations of malpractice or fraud in an interview with the Financial Times. He said:

“We did not have the intention of cheating, as we just wanted to implement a payment settlement system using blockchain technology,”

South Korean authorities have launched a full-scale investigation into the recent collapse of the Terra ecosystem and the role of Terraforms Labs employees and co-founder Do Kwon.

Chinese State Media Signal Tighter Crypto Regulation Amid Terra Fallout

The first investigation began in the second week of May after 81 investors collectively filed two complaints against the firm for defrauding investors with a faulty token.

As Cryptooshala previously reported, South Korea’s fearsome investigative-prosecution team called the Yeouido Grim Reapers has been reformed by the new president to study Terraform Labs. Later, the Conservative Party of South Korea demanded a parliamentary hearing on the issue.

In the last week of May, Korean authorities subpoenaed all Terraform Labs employees to investigate any insider role in market manipulation. The authorities also required crypto exchanges to freeze funds associated with LFG.

South Korea’s national tax agency fined Terraform Labs $78 million on tax evasion charges that came to light after several investigations following the firm’s collapse.

The collapse of the $40 billion Terra ecosystem not only caused legal problems for the creators of the project, but also forced regulators around the world to reconsider their cryptocurrency regulation strategy. Korea has formed a new cryptocurrency oversight committee, while Japan has adopted new rules allowing only trust companies and banks to issue stablecoins.