• Terraform Labs co-founder faces fraud charges in the US over the $40 billion TerraUSD collapse in 2022.

  • Prosecutors allege investors were misled about TerraUSD's stability leading to massive cryptocurrency losses.

  • The TerraUSD collapse triggered widespread market turmoil affecting Bitcoin and other major digital assets.

The co-founder of Terraform Labs has pleaded not guilty to fraud charges in the United States. The charges originate from the $40 billion collapse of TerraUSD. The Manhattan US Attorney's Office is prosecuting the case.

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Kwon was extradited to the United States after his arrest in Montenegro for using a fake passport. He attempted to board a private plane to Dubai in March 2023. However, he was arrested by authorities at Podgorica Airport. 

Although Montenegro first approved South Korea's extradition request, the United States eventually obtained his transfer. This was due to its security partnership with Montenegro. He appeared in Manhattan court and agreed to be held in jail without bail. The next hearing is scheduled on January 8, 2025.

Fraud Allegations Linked to TerraUSD Collapse

The charges include wire fraud, securities fraud, commodities fraud, and conspiracy. Prosecutors argue that the co-founder deceived investors about TerraUSD's ability to maintain its $1 value.

Investigators believe he conspired with a trading firm to artificially stabilize TerraUSD when its value dropped in 2021. This action apparently prompted investors to buy additional products, increasing Luna's worth. Luna is a cryptocurrency that is connected to TerraUSD.

TerraUSD and Luna had a combined market value of $50 billion by early 2022. Both collapsed in May 2022, resulting in severe losses for the cryptocurrency market. The collapse affected other major digital assets like Bitcoin, worsening the financial impact.

Legal Challenges Beyond Criminal Charges

The SEC filed a civil fraud lawsuit in 2022. A federal jury found the company liable in April 2024. This resulted in a $4.47 billion judgment. In June 2024, the business settled with the SEC for $80 million. It filed for bankruptcy in January 2025.

The fall of TerraUSD and Luna shook the cryptocurrency industry. It contributed to the downfall of big companies such as FTX. 

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