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- Do Kwon, co-founder of Terraform Labs, has pleaded not guilty to US fraud charges over the $40 billion collapse of stablecoin TerraUSD.
- US claims Kwon defrauded investors in multi-billion dollar fraud; a trial conference is scheduled for January 8.
Do Kwon, co-founder of Terraform Labs, pleaded not guilty Thursday to fraud charges related to the $40 billion collapse of stablecoin TerraUSD, according to for Bloomberg. The 33-year-old appeared before U.S. Magistrate Judge Robert Lehrburger in Manhattan, where he agreed to remain in custody without bail.
His legal troubles date back to March 2023, when he was arrested in Montenegro for traveling with a fake passport. Despite Kwon’s attempts to advocate extradition to his home country of South Korea, the Supreme Court of Montenegro eventually approved his extradition to the US in December 2024.
The extradition decision follows months of legal disputes between South Korea and the United States. Kwon himself advocated for South Korea, citing the usually lighter penalties for financial crimes there. However, Montenegro leaned towards the USA, a key security partner.
His case will be prosecuted by the US Attorney’s office in Manhattan, which has recently secured convictions against other crypto figures such as FTX co-founder Sam Bankman-Fried.
Terraform Fallout — DOJ and SEC Charges
Kwon’s problems stem from the implosion of Terraform Labs’ stablecoin TerraUSD and its sister token, Luna, in May 2022. Market confidence in the tokens evaporated within 48 hours, wiping out over 99% of Terraform Labs’ value. The crash sparked a wider crypto disaster, wiping out $40 billion in market value and plunging other tokens like Bitcoin and Ethereum into chaos.
The US Department of Justice alleges that Kwon misled investors about the stability of TerraUSD and Terraform’s adoption of blockchain. Prosecutors accuse him of organizing a huge securities fraud. “He misled investors,” they claim, about the technology that underpins Terraform and the applications that use it. His plea has so far denied wrongdoing, but it remains unclear whether his stance will change as the trial progresses.
During his time in Montenegro, Kwon also faced a civil fraud charge by the US Securities and Exchange Commission (SEC). In that case, Terraform Labs was ordered to pay $4.47 billion, although the company later filed for bankruptcy.
Can Kwon escape justice?
Kwon’s arrest and trial symbolize a reckoning for a sector that has seen meteoric rises and catastrophic declines. The collapse of Terraform played a direct role in the collapse of the crypto exchange FTX, whose founder Sam Bankman-Fried received a 25-year prison sentence.
Kwon was a central figure at Terraform, owning 92% of the company and publicly calling himself “The Madman” in his support of the Luna token. The TerraUSD crash not only broke up Terraform, but also rocked smaller crypto companies, some of which collapsed completely.
A court conference is scheduled for January 8 as the US justice system prepares to hold Kwon accountable for what it calls “the orchestration of a multibillion-dollar crypto-asset securities fraud.” Although he denies the allegations, the case against him is significant for the crypto industry, which is still struggling with trust issues.
