Article reprinted from: Odaily Planet Daily

Author: jk, Odaily Planet Daily

On January 2, local U.S. time, Do Kwon, the former founder of Terra and co-founder of Terraform Labs, officially appeared in the public eye at a U.S. court. At the hearing in Manhattan federal court, Do Kwon entered a plea of not guilty, and the case will officially enter the trial process.

Odaily previously reported that Montenegro's Prime Minister Milojko Spajic stated on Tuesday that Montenegro has completed the procedures to extradite Terraform Labs co-founder Do Kwon to the U.S. Spajic posted on the X platform: "This extradition demonstrates our unwavering commitment to international justice and the rule of law."

Do Kwon is facing lawsuits in both New York and Seoul due to the $40 billion collapse of the TerraUSD stablecoin in 2022. Last year, he was arrested in Montenegro for traveling with a forged passport. In April of this year, after a civil trial regarding the SEC charges, Terraform and its founder Do Kwon were found guilty of fraud. Terraform has agreed to pay $4.5 billion to settle with the SEC.

Background news: The collapse of Terra, Do Kwon's extradition, and prospective trial process

The collapse of Terra

In May 2022, the Terra ecosystem experienced an unprecedented collapse in the history of cryptocurrency, with the core cryptocurrencies TerraUSD (UST) and LUNA losing nearly all their value, resulting in approximately $40 billion in losses.

UST was the top representative of algorithmic stablecoins at the time, maintaining a 1:1 peg with the dollar through algorithms and market incentives, while LUNA was the governance token supporting the stability of UST. However, in early May, as the Terra protocol was upgraded and funds fled, UST lost its peg to the dollar, causing its price to plummet rapidly and triggering market panic. In response to this crisis, Terraform Labs attempted to support the price of UST with reserves but was unsuccessful. Meanwhile, the dual-coin mechanism of the Terra protocol led to the minting of a large amount of new LUNA, further depressing the price of LUNA and creating a vicious cycle.

Ultimately, the price of LUNA plummeted from a peak of about $119 to nearly zero, causing the entire ecosystem to collapse. Meanwhile, the collapse of Terra triggered a chain reaction in the market, affecting other cryptocurrencies such as Bitcoin, leading to the complete evaporation of funds for millions of investors. Subsequently, algorithmic stablecoins almost vanished from the market, directly leading to subsequent market crashes like that of 3AC.

Extradition to the U.S. or South Korea?

Do Kwon found himself embroiled in a tug of war earlier this year: both the U.S. and South Korea wanted to try him domestically. In March, it was reported that Do Kwon would ultimately be extradited to South Korea, but the decision was delayed by the Supreme Court of Montenegro, which ultimately confirmed his extradition to the U.S. in December.

Previously, there were rumors in the market that when Do Kwon was arrested by Montenegrin police, a Trezor hardware cold wallet was found in his rectum, reportedly containing over 10,000 bitcoins. These bitcoins are now worth over a billion dollars.

Source: X

Prospective trial process

In court, Do Kwon pleaded not guilty to his charges. So what will happen next?

Pleading not guilty is a formal statement made by a defendant in a criminal case in U.S. judicial proceedings, indicating that they deny committing the crimes charged. This does not mean the defendant is found not guilty directly, but it requires the prosecution to provide sufficient evidence to prove the charges, and the case will enter the trial phase, where the court will decide whether the defendant is guilty.

The case will be heard again on January 8.

In other words, we will witness a courtroom drama similar to that of SBF earlier this year, with many insider details of the Terra collapse being revealed from witness testimonies to the final verdict. Odaily will continue to follow and report on this.

Potentially facing 130 years, yet he smiles.

Do Kwon is facing multiple charges. According to a press release from the Public Affairs Office of the U.S. Department of Justice, the main charges against Do Kwon are as follows:

False statements made by Do Kwon:

  • False statements about the stablecoin: Kwon falsely promoted the efficacy of the "Terra protocol" system, which allegedly uses computer algorithms to maintain the value of Terraform's so-called stablecoin TerraUSD (UST) at $1-1 UST. However, Kwon knew that after the Terra protocol failed to restore UST's peg to $1 in May 2021, he reached an agreement with executives from a high-frequency trading firm for that firm to purchase large amounts of UST to artificially support the peg.

  • False statements by LFG: Kwon falsely promoted the governance of Luna Foundation Guard Ltd. (LFG), claiming that the organization was managed by independent management agencies responsible for deploying billions of dollars in financial reserves to defend the peg of UST. However, Kwon actually controlled LFG and Terraform and misappropriated hundreds of millions of dollars of LFG assets.

  • False statements about Mirror: Kwon falsely promoted the success of the Mirror protocol on the Terraform blockchain, which allegedly allowed users to create, purchase, and sell synthetic versions of stocks listed on U.S. exchanges. However, Kwon and Terraform actually controlled Mirror and manipulated the prices of synthetic assets through automated trading bots.

  • False statements about Chai: Kwon falsely claimed that the Terraform blockchain was used to process billions of dollars in financial transactions for the South Korean payment app Chai, but in reality, Chai used traditional financial processing networks.

  • False statements about the founding token: Kwon used the 100 million founding stablecoins originally intended for reserves in fraudulent transactions, including manipulating the prices of Mirror assets.

Daniel M. Gitner, the U.S. Attorney for the Southern District of New York, stated, "As we have alleged, this fraudulent conduct and the collapse of Terraform's cryptocurrency in May 2022 wiped out over $40 billion in investor assets, causing devastating losses to countless investors in the U.S. and globally. Kwon will now face a trial for justice in Manhattan federal court."

However, according to Inner City Press, during the hearing, "Do Kwon was seen chatting with one of his lawyers, smiling—apparently in good spirits."

Do Kwon enters the courtroom. Source: Inner City Press

According to The Block, Kwon also faces civil charges filed by the U.S. Securities and Exchange Commission (SEC) in February 2023. The lawsuit between Terraform and the SEC began hearings at the end of March, but he did not participate. In April, the jury ruled that Terraform and Kwon misled investors and were liable for civil fraud, violating federal securities laws.

Kwon faces two counts of commodity fraud (up to 10 years each), two counts of securities fraud (up to 20 years each), two counts of telecommunications fraud (up to 20 years each), two counts of conspiracy (up to 5 years each), and one count of money laundering conspiracy (up to 20 years). If all charges are upheld, Do Kwon could face up to 130 years in prison, more than five times that of SBF.