Cryptocurrency Entrepreneur Do Kwon Pleads Not Guilty to Fraud Charges in U.S. Court

Do Kwon, the South Korean cryptocurrency entrepreneur whose digital currencies TerraUSD and Luna collapsed in 2022, resulting in an estimated $40 billion loss, has pleaded not guilty to U.S. criminal fraud charges. Kwon, who was extradited from Montenegro this week, appeared in Manhattan federal court, where federal prosecutors unsealed a nine-count indictment against him.

The indictment charged Kwon, 33, with securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering. Kwon co-founded Singapore-based Terraform Labs and developed the two cryptocurrencies at the center of the case.

Wearing an olive-green long-sleeved shirt and black sweatpants, Kwon was represented by attorney Andrew Chesley, who entered the not-guilty plea on his client’s behalf during the hearing before U.S. Magistrate Judge Robert Lehrburger. The judge ordered Kwon to remain in detention after Chesley stated he would not seek bail at this time. Kwon was seen taking a copy of the 79-page indictment as U.S. marshals escorted him from the courtroom. He is scheduled to appear in court again on January 8.

Last June, Kwon had agreed to an $80 million civil fine and a ban from cryptocurrency transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission (SEC). Despite this settlement, the current indictment accuses Kwon of misleading investors about TerraUSD, a stablecoin designed to maintain a $1 value.

According to prosecutors, Kwon falsely claimed in 2021 that TerraUSD’s value was restored by a computer algorithm known as the "Terra Protocol" after it dipped below its peg. In reality, prosecutors allege Kwon had arranged for a high-frequency trading firm to secretly purchase millions of dollars’ worth of the token to artificially stabilize its price.

The indictment further states that these deceptive claims, along with others, led to increased investments in Terraform products, ultimately inflating the value of Luna—a related token tied to TerraUSD—to $50 billion by the spring of 2022. "Much of this growth followed Kwon’s brazen deceptions about Terraform and its technology," the indictment alleges.

When TerraUSD’s value began to decline again in May 2022, the trading firm reportedly warned Kwon that propping it up “wasn’t so simple this time,” according to the indictment. The subsequent collapse of TerraUSD and Luna caused widespread turmoil in the cryptocurrency market, affecting other cryptocurrencies such as Bitcoin.

Prosecutors have not named the trading firm involved in the alleged scheme. However, in its civil case, the SEC identified Jump Trading as the firm that propped up TerraUSD in 2021. Jump Trading has not responded to requests for comment.

Kwon was previously found liable for defrauding cryptocurrency investors in a federal jury trial on SEC claims last April. Terraform’s legal team argued during that trial that the company and Kwon were transparent about their products and their mechanisms, even when those products failed. Kwon did not attend that trial because he was detained in Montenegro on forgery charges since March 2023.

Kwon was handed over to U.S. law enforcement officers on Tuesday at an airport in Podgorica, Montenegro’s capital. His company, Terraform Labs, filed for bankruptcy in January 2023.

The charges against Kwon come amid heightened scrutiny of cryptocurrency moguls following a sharp decline in digital token values in 2022, which led to the collapse of several crypto firms. Other notable cases include Sam Bankman-Fried, founder of FTX, who is appealing his conviction and 25-year sentence for misappropriating $8 billion in customer funds, and Alex Mashinsky, the former CEO of Celsius Network, who pleaded guilty to fraud charges last month.

By fLEXI tEAM