Former crypto executive Do Kwon pleads not guilty to US fraud charges in court

NEW YORK (Reuters) - Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies set to lose about $40 billion in 2022, pleaded not guilty to U.S. criminal fraud charges on Thursday after being extradited from Montenegro this week.

Federal prosecutors in Manhattan charged Kwon, who founded Singapore-based Terraform Labs and developed the TerraUSD and Luna currencies, in March 2023 with two counts each of securities fraud, wire fraud, commodities fraud and conspiracy.

A charge of money laundering conspiracy was added to the updated 79-page indictment filed Thursday.

Kwon, 33, entered his plea to U.S. Magistrate Judge Robert Lehrburger in Manhattan federal court.

Last June, Terraform agreed to pay an $80 million fine and be banned from cryptocurrency trading as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission.

The Manhattan U.S. Attorney’s Office alleged in an indictment on Thursday that Kwon misled investors in 2021 about TerraUSD, a so-called stablecoin designed to maintain its value at $1.

Kwon allegedly told investors that he restored the value of the cryptocurrency, which had fallen below its peg in May 2021, using a computer algorithm known as the "Terra Protocol," but in fact arranged for a high-frequency trading firm to secretly purchase millions of dollars worth of the cryptocurrency to artificially prop up its price.

Prosecutors said the false claims and others led retail and institutional investors to buy Terraform products, sending the value of Luna, a more traditional token developed by Kwon that has fluctuated in value but is closely tied to TerraUSD, to $50 billion by spring 2022.

“Much of this growth occurred following Kwon’s brazen deceptions about Terraform and its technology,” the indictment said.

When the value of TerraUSD began to fall again in May 2022, the trading firm warned that supporting it “was not so simple this time,” according to the indictment.

TerraUSD and Luna crashed that month, sending other cryptocurrencies, including Bitcoin, into disarray and causing wider turmoil in the crypto market.

Prosecutors did not name the trading firm, but it fits the description of Jump Trading, which SEC lawyers say in their legal case backed TerraUSD in May 2021. Jump did not immediately respond to requests for comment.

In a lawsuit filed on the SEC’s allegations, a federal jury in Manhattan found Kwon and Terraform liable for defrauding cryptocurrency investors last April.

Terraform's attorney said in his closing arguments in the case that Terraform and Kwon were honest about their products and the way they worked, even if they failed.

Kwon did not attend that hearing because he has been detained in Montenegro since March 2023. Terraform declared bankruptcy last January.

Kwon is one of several crypto moguls facing federal charges after a crash in digital token prices in 2022 led to the collapse of a number of companies.

Sam Bankman-Fried, who founded the FTX exchange, is appealing the 25-year prison sentence he received last March for stealing $8 billion from his customers.

Alex Mashinsky, the founder and former CEO of cryptocurrency lender Celsius Network, pleaded guilty to two fraud charges last month.
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