Do Kwon, the South Korean cryptocurrency entrepreneur behind the collapsed TerraUSD and Luna digital currencies, faced criminal fraud charges in a US court yesterday after his extradition from Montenegro earlier this week. The currencies’ dramatic fall in 2022 wiped out an estimated $40 billion (€29 billion) and triggered a broader crisis in the crypto market.
Charges and Legal Proceedings
Federal prosecutors in Manhattan charged Kwon in March 2023 with multiple counts, including securities fraud, wire fraud, commodities fraud, and conspiracy. Appearing before US Magistrate Judge Robert Lehrburger in Manhattan, Kwon denied any wrongdoing.
In June 2023, Kwon agreed to pay an $80 million civil fine and accepted a ban from participating in cryptocurrency transactions. The settlement was part of a $4.55 billion agreement between Kwon, his company Terraform Labs, and the US Securities and Exchange Commission (SEC).
Civil Trial Verdict
A federal jury in Manhattan found Kwon and Terraform Labs liable last April in a civil trial for defrauding cryptocurrency investors. While Kwon did not attend the trial due to his detention in Montenegro since March 2023, a lawyer for Terraform argued that the company and its founder had been transparent about their products, despite their eventual failure.
Terraform Labs, which Kwon co-founded, filed for bankruptcy in January 2023.
TerraUSD and Luna Collapse
The SEC and the Manhattan US Attorney’s office allege that Kwon misled investors about TerraUSD’s stability. TerraUSD was marketed as a stablecoin designed to maintain a consistent $1 value, while its counterpart, Luna, was a more volatile token tied to the stablecoin.
In 2022, both currencies collapsed, causing a ripple effect across the crypto market. Bitcoin and other cryptocurrencies saw significant losses, exacerbating the already volatile landscape of digital assets.
Broader Fallout in the Crypto Industry
Do Kwon is among several high-profile cryptocurrency executives facing legal consequences following the downturn in digital token prices in 2022.
Sam Bankman-Fried, the founder of crypto exchange FTX, was convicted last March and sentenced to 25 years for stealing $8 billion from customers. He is currently appealing the decision. Similarly, Alex Mashinsky, former CEO of Celsius Network, pleaded guilty last month to two counts of fraud tied to his crypto lending platform.
The Road Ahead
Do Kwon’s case serves as a stark reminder of the legal and financial scrutiny intensifying within the cryptocurrency sector. As US authorities ramp up oversight, the fallout from 2022’s market slump continues to reverberate, reshaping the landscape of digital finance and its governance.
