Do Kwon, the co-founder of Terraform Labs, has pleaded not guilty to all charges brought against him for his role in the $40 billion TerraUSD stablecoin collapse.
Kwon is being prosecuted by the Manhattan US Attorney’s office and faces nine charges, including securities, wire, and commodities fraud.
Do Enters Not Guilty Plea
Do Kwon maintained he was innocent and that the $40 billion collapse of the TerraUSD stablecoin was not because of him. Despite pleading not guilty, Do Kwon agreed to remain in custody without bail. The legal proceedings against Kwon are the culmination of a two-year saga about whether the Terraform Labs founder would face justice in South Korea or the US. Do Kwon was arrested in Montenegro after attempting to travel using a fake passport and was finally extradited to the US. Do Kwon did not speak during his court appearance except to acknowledge to the judge he understood English.
Charges related to the dramatic collapse of the TerraUSD stablecoin were filed against Do Kwon by New York and South Korea. The collapse, which sent shockwaves across the crypto ecosystem, also contributed to the collapse of major crypto firms, including the Sam Bankman-Fried-led FTX. Following his extradition, Do Kwon, who holds a 92% stake in Terraform, faces prosecution from the Manhattan US Attorney’s office, which successfully prosecuted FTX founder Sam Bankman-Fried, who received a 25-year sentence.
Prosecutors alleged Do Kwon misled investors about the adoption and capabilities of the Terra blockchain. According to the indictment, Do Kwon told investors Terraform had developed novel and reliable financial technologies that allowed it to turn blockchain technology into a self-contained, decentralized finance ecosystem with its own money, payment system, stock market, and savings bank. The indictment stated,
“Kwon’s constructed financial world was built on lies and manipulative and deceptive techniques used to mislead investors, users, business partners, and government regulators” about Terraform’s business. Behind the scenes, core Terraform products did not work as Kwon advertised, and were manipulated to create the illusion of a functioning and decentralized financial system to lure investors.”
Do Kwon avoided the authorities for months until he and Terraform’s former CFO were apprehended in Montenegro while attempting to flee to Dubai using forged passports.
The Collapse Of TerraUSD
Terraform Labs had two cryptocurrencies, TerraUSD and Luna. Both collapsed in 2022, leading to the evaporation of around $40 billion from the markets. The collapse of the TerraUSD stablecoin had a domino effect, leading to the collapse of several major crypto companies. In June, Terraform Labs and Do Kwon agreed to a settlement with the Securities and Exchange Commission to pay around $4.3 billion in recovery and civil penalties, with Kwon agreeing to pay at least $200 million. Additionally, Do Kwon and Terraform Labs were permanently banned from selling crypto assets and securities.
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