Key Takeaways
Do Kwon has pleaded not guilty to US fraud charges related to the collapse of TerraUSD and Luna.
Kwon is accused of misleading investors about the stability and functionality of TerraUSD.
Do Kwon pleaded not guilty to multiple fraud charges in Manhattan federal court after being extradited from Montenegro. These charges are related to the $40 billion collapse of TerraUSD and Luna digital assets in 2022.
[Do Kwon is looking at the superseding indictment and then turns to his second lawyer]
Judge: How do you plead?
Not guilty [through counsel Chesley who adds, We consent to detention without prejudice
— Inner City Press (@innercitypress)January 2, 2025
Kwon, who co-founded Terraform Labs, is facing charges of securities fraud, wire fraud, commodities fraud, and conspiracy to defraud and engage in market manipulation.
Prosecutors claim that he misled investors about the stability and functionality of TerraUSD, a stablecoin designed to maintain a $1 peg, as well as its companion token Luna.
His defense team argued that the collapse of the tokens was a result of market dynamics rather than fraudulent activity. They emphasized that Kwon had been transparent about the risks associated with the investment.
The SEC and federal prosecutors in New York allege that Kwon deceived investors by claiming that TerraUSD could “self-heal” or automatically maintain its peg through algorithmic means, when in reality it required significant external intervention, including secret agreements with high-frequency trading firms to support its price.
Prosecutors highlighted instances where Kwon’s public statements allegedly contradicted the operational realities of Terraform Labs, while also emphasizing the substantial losses suffered by investors.
If convicted on all charges, Kwon could face a sentence of more than 100 years in prison, although actual sentences typically fall below the maximum penalties. The date for his next court appearance has not been set.
In April 2024, a New York jury found Terraform Labs and Do Kwon guilty of fraud in a case brought by the SEC, which was related to misrepresenting the stability of TerraUSD.
Last month, Terraform Labs and Do Kwon reached a preliminary settlement with the SEC regarding civil fraud charges resulting from the collapse of TerraUSD. This settlement includes financial penalties and operational restrictions for Kwon.
In May 2024, the lawyers for Terraform Labs argued against the SEC’s charges, claiming that the majority of their token sales were conducted outside the US and that the evidence does not support the alleged financial losses.