Do Kwon, the South Korean entrepreneur behind the catastrophic collapse of the TerraUSD and Luna cryptocurrencies, pleaded not guilty to U.S. fraud charges on Thursday following his extradition from Montenegro.
Kwon, co-founder of Singapore-based Terraform Labs, faces a nine-count indictment in Manhattan federal court, including charges of securities fraud, wire fraud, commodities fraud, and money laundering conspiracy. Prosecutors allege that Kwon, 33, orchestrated a series of deceptions that led to the loss of an estimated $40 billion in 2022, destabilizing the broader cryptocurrency market.
Court Appearance and Detention
At the hearing, Kwon appeared in court wearing an olive-green shirt and black sweatpants. His attorney, Andrew Chesley, entered a not-guilty plea on his behalf. U.S. Magistrate Judge Robert Lehrburger ordered Kwon to remain in custody, as Chesley did not seek bail.
Kwon is expected to return to court on Jan. 8, 2025. He left the courtroom with a copy of the 79-page indictment in hand.
Fraud Allegations
The indictment accuses Kwon of misleading investors about the stability of TerraUSD, a stablecoin pegged to the U.S. dollar. Prosecutors claim that in May 2021, Kwon falsely stated that a computer algorithm, the “Terra Protocol,” had restored TerraUSD’s $1 peg after it slipped below the threshold. In reality, Kwon allegedly arranged for a high-frequency trading firm to purchase millions of dollars of TerraUSD to artificially prop up its price.
This deception, prosecutors say, drove significant investment into Terraform Labs products and boosted the value of Luna, TerraUSD’s companion token, to $50 billion by early 2022. The indictment states, “Much of this growth followed Kwon’s brazen deceptions about Terraform and its technology.”
When TerraUSD began to lose its peg again in May 2022, attempts to stabilize it failed, leading to a crash that wiped out TerraUSD, Luna, and billions in other cryptocurrency assets.
Background and Prior Cases
Kwon’s extradition follows his arrest in Montenegro in March 2023 for forgery charges. He had been detained in the country until U.S. law enforcement took custody of him this week.
Last year, Kwon agreed to an $80 million fine and a ban on cryptocurrency transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission (SEC). Despite the settlement, Terraform declared bankruptcy in January 2024.
In a related SEC civil trial, a Manhattan federal jury found Kwon and Terraform liable for defrauding cryptocurrency investors. Kwon was not present at that trial due to his detention in Montenegro.
Wider Crypto Fallout
Kwon joins a growing list of cryptocurrency executives facing federal charges following the market’s collapse in 2022.
- Sam Bankman-Fried, founder of FTX, is appealing his conviction and 25-year sentence for misappropriating $8 billion in customer funds.
- Alex Mashinsky, former CEO of Celsius Network, pleaded guilty last month to fraud charges related to his company’s downfall.
The TerraUSD and Luna collapse is widely regarded as one of the cryptocurrency sector’s most significant failures, triggering massive financial losses and a loss of confidence in digital assets.
