Do Kwon denies 9 charges for the first time in the United States, and the case will continue to be heard next week.

Author: Luc Cohen

Compilation: Deep Tide TechFlow

Introduction

Terraform Labs co-founder Do Kwon is facing serious legal challenges for causing the TerraUSD crash in 2022. On December 31 (according to Bloomberg), the Prime Minister of Montenegro stated that the US extradition process of Do Kwon, co-founder of Terraform Labs, has been completed. The US Securities and Exchange Commission (SEC) has filed multiple fraud charges against him, including securities fraud and money laundering. What will be the progress of the hearing and how will the case develop in the future?

TechFlow compiled this article to follow up on the latest developments and progress of Kwon's recent hearing and extradition case.

Police escort Terraform Labs co-founder Do Kwon to the location of Podgorica, Montenegro. He was transferred on March 23, 2024, after serving a sentence for forgery.

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Summary

Kwon was extradited from Montenegro to the United States and faces criminal charges

Prosecutors accuse Kwon of misleading investors in the TerraUSD project

Following the market crash in 2022, multiple giants in the crypto space were sued

South Korean cryptocurrency entrepreneur Do Kwon is the developer of TerraUSD and Luna, two digital currencies that caused investors losses of up to about $40 billion in the 2022 market crash. This week, Kwon was extradited from Montenegro to the United States and pleaded not guilty to criminal fraud charges in court on Thursday.

U.S. prosecutors in Manhattan on Thursday unveiled a nine-count indictment alleging that Terraform Labs co-founder Kwon, the developer of the TerraUSD and Luna cryptocurrencies, is suspected of securities fraud, wire fraud, merchandise fraud and conspiracy to launder money. These allegations are directly related to the TerraUSD and Luna crashes.

Kwon appeared in the Manhattan Federal Court on Thursday, wearing an olive green long-sleeved shirt and black sweatpants. At the hearing, his lawyer, Andrew Chesley, pleaded not guilty on his behalf. US District Judge Robert Lehrburger ordered Kwon to remain in custody as the lawyer indicated that bail would not be sought at this time. After the trial, Kwon received a 79-page indictment and left the courtroom under the escort of US marshals. He is expected to appear in court again on January 8th.

In fact, as early as June last year, Kwon reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) for a staggering $4.55 billion in a civil case related to the collapse of TerraUSD and Luna. As part of the agreement, he agreed to pay a fine of $80 million and is prohibited from participating in any cryptocurrency transactions. However, this has not prevented him from facing charges in criminal cases.

According to Thursday's indictment, Manhattan prosecutors accused Kwon of misleading investors during the promotion of TerraUSD in 2021. TerraUSD is a cryptocurrency known as a stablecoin, designed to maintain a value of 1 US dollar.

The indictment alleges that when TerraUSD fell below $1 in May 2021, Kwon publicly claimed that an algorithm called 'Terra Protocol' had restored its value. However, in reality, he arranged for a high-frequency trading company to secretly purchase millions of dollars worth of tokens to artificially inflate the price.

The prosecutor pointed out that the false statement released by Kwon attracted a large number of retail investors and institutional investors to rush to buy Terraform's products, which directly pushed up the price of Luna, which is closely associated with TerraUSD. Luna is a highly volatile cryptocurrency, with a market value of up to $50 billion in the spring of 2022.

"Much of this growth has relied heavily on Kwon's blatant fraud on Terraform and its technology," the indictment reads.

However, when the value of TerraUSD fell sharply again in May 2022, an unnamed trading company warned that "stabilizing its price this time will not be easy."

Eventually, both TerraUSD and Luna crashed during the month. This event not only led to a significant drop in the price of other cryptocurrencies, such as Bitcoin, but also caused violent turmoil in the entire crypto market.

Although the prosecutor did not disclose the name of the trading company, the U.S. Securities and Exchange Commission (SEC) pointed out in its civil case that Jump Trading had helped stabilize the price of TerraUSD in May 2021. Jump Trading has not yet responded to this.

Montenegro detention

In the lawsuit filed by the US Securities and Exchange Commission (SEC) against Terraform, a Manhattan federal jury ruled in April last year that Kwon and Terraform were responsible for defrauding cryptocurrency investors.

In the closing argument, Terraform's lawyer argued that the company and Kwon always disclosed the products and their operations truthfully, even though these products ultimately ended in failure.

However, Kwon did not attend that trial because he has been detained in Montenegro since March 2023 on charges of falsifying documents. He was handed over to the United States police this Tuesday at the airport in Podgorica, the capital of Montenegro.

Terraform declared bankruptcy as early as January last year.

Kwon is one of several crypto giants facing federal charges for allegedly violating the law following the 2022 digital currency market crash. That market crisis not only led to the collapse of several companies, but also had a profound impact on the entire industry.

For example, Sam Bankman-Fried, the founder of the FTX exchange, was found guilty in March last year and sentenced to 25 years in prison for embezzling up to $8 billion in customer funds. He is currently appealing the verdict.

In addition, Alex Mashinsky, the founder and former CEO of the cryptocurrency lending platform Celsius Network, also admitted two fraud charges last month.