Do Kwon, the South Korean founder of Terraform Labs, entered a not-guilty plea to a nine-count criminal indictment during a court appearance in the United States.
Kwon, known for creating the TerraUSD stablecoin and another cryptocurrency that collectively lost an estimated $40 billion, faces charges including securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering.
Court Proceedings and Detention
The hearing, held in Manhattan federal court yesterday, followed Kwon’s extradition from Montenegro last week. U.S. Magistrate Judge Robert Lehrburger ordered Kwon to remain in custody after his attorney, Andrew Chesley, stated that his client would not seek bail at this time.
As U.S. Marshals escorted Kwon out of the courtroom, he carried a copy of the 79-page indictment detailing the charges against him.
$80 Million Civil Fine Agreement
In a separate legal battle, Kwon agreed in June 2023 to pay an $80 million civil fine and accept a ban on cryptocurrency transactions. This settlement was part of a $4.55 billion agreement between Kwon, Terraform Labs, and the U.S. Securities and Exchange Commission (SEC).
Kwon’s case echoes the legal troubles of Binance founder Changpeng Zhao, who recently paid a $50 million personal fine alongside his company’s $4 billion settlement with U.S. regulators. Kwon now joins the ranks of high-profile Asian crypto executives facing significant legal and financial consequences.
Allegations of Deception
Prosecutors in the Manhattan U.S. Attorney’s Office unveiled details of Kwon’s alleged deceptive practices that misled investors and resulted in substantial losses.
- According to the indictment, Kwon misrepresented TerraUSD’s stability to investors in 2021, claiming that its value was maintained at $1 through a computer algorithm called the “Terra Protocol.”
- However, prosecutors allege that Kwon secretly arranged for a high-frequency trading firm to purchase millions of dollars worth of TerraUSD to artificially stabilize its price during periods of volatility. This scheme temporarily propped up the stablecoin when it lost its $1 peg in May 2021.
The collapse of TerraUSD and its sister token in May 2022 resulted in losses totaling $40 billion. The crash had a cascading effect, pulling down the value of other cryptocurrencies, including Bitcoin.
Alleged Role of Jump Trading
While the prosecutors did not name the trading firm involved in the alleged manipulation, Reuters reported that SEC lawyers suspect it was Jump Trading that collaborated with Kwon to prop up TerraUSD in 2021. Jump Trading has neither confirmed nor denied the allegations.
The case against Do Kwon sheds light on the risks and complexities of the cryptocurrency market, as regulators and law enforcement continue to crack down on fraudulent activities within the industry.
What to know
- Terra USD was a stablecoin meaning that its value was pegged to the dollar at a 1:1 ratio. The stablecoin unpegged in 2021 dropping from $1 and costing people lots of money.
- In 2022, the stablecoin finally collapsed losing investors $40 billion. Kwon was extradited from Montenegro to face charges in the US.
