Terraform Labs co-founder Do Kwon appeared in a U.S. courtroom on Thursday for the first time after his extradition from Montenegro and pleaded not guilty to several fraud charges.
Federal prosecutors in Manhattan have charged Kwon, 33, with securities fraud, wire fraud, commodities fraud, conspiracy, and the newly added charge of money laundering conspiracy. These charges are based on accusations that he deceived investors regarding the stability and security of TerraUSD, a stablecoin intended to maintain a value of $1.
Prosecutors allege Kwon falsely assured investors in May 2021 that the “Terra Protocol” algorithm had successfully stabilized TerraUSD during a price decline. The indictment claims Kwon secretly arranged for a high-frequency trading firm to inject funds into the ecosystem to artificially maintain TerraUSD’s value.
The May 2022 collapse of TerraUSD caused a domino effect, leading to the devaluation of Luna and significant disruptions in the cryptocurrency market, with Bitcoin and other major tokens experiencing significant declines. Retail and institutional investors suffered heavy losses. According to prosecutors, Kwon’s deception inflated Luna’s value, reportedly reaching $50 billion at its peak.
The updated 79-page indictment on Thursday provided new details on the money laundering conspiracy charge, alleging that funds were transferred through various accounts to obscure the origins of illicit gains. Internal communications referenced by the Manhattan U.S. Attorney’s office suggest that when TerraUSD began destabilizing in 2022, an unnamed trading firm warned that restoring its value would be more challenging than during the previous crash. Although the indictment does not explicitly name the trading firm, descriptions align with Jump Trading, a firm mentioned in related civil cases filed by the U.S. Securities and Exchange Commission (SEC). Jump Trading has declined to comment on these allegations.
Before being extradited to the U.S., Kwon faced months of legal proceedings in Montenegro after being detained for attempting to travel with falsified documents. The Montenegrin court prioritized the U.S. extradition request over South Korea’s request to have Kwon returned to face charges in his home country.
This case adds to the growing list of legal actions against prominent figures in the crypto industry. Kwon’s situation draws parallels with Sam Bankman-Fried, the FTX founder sentenced to 25 years in prison for misappropriating $8 billion in customer funds, and Alex Mashinsky, former CEO of Celsius Network, who recently pleaded guilty to fraud charges.
Terraform Labs, the company behind the TerraUSD and Luna projects, declared bankruptcy in January 2023, further complicating investor recovery efforts. In June 2024, Kwon reached a $4.55 billion settlement with the SEC, including an $80 million fine and a ban from participating in crypto activities. Despite these civil penalties, the criminal charges he faces could lead to a lengthy prison sentence if convicted.
**Twitter Update**: JUST IN: 🇺🇸 Do Kwon pleads not guilty to US fraud charges over $40 billion Terra collapse—Watcher.Guru January 2, 2025. 🚨 Defunct crypto lender @CelsiusNetwork files an appeal to overturn a court ruling denying its $444M claim against FTX. #Celsius #FTX
