Do Kwon pleads not guilty to fraud charges in TerraUSD collapse
The cryptocurrency world has seen its fair share of scandals, but few have been as monumental as the collapse of Terraform Labs and its co-founder, Do Kwon. The South Korean crypto tycoon now stands accused of fraud, money laundering, and deceiving investors allegations that led to an international manhunt and his eventual extradition from Montenegro. He appeared in a U.S. court on January 2, 2025, where he pleaded not guilty to charges related to the $40 billion collapse of the Terra ecosystem.
Allegation insight and arrest in Montenegro
Do Kwon quickly gained fame in the crypto community by co-founding Terraform Labs. He envisioned setting up a decentralised financial system that would offer serious competition to the banking sector. The core of Terraform Labs includes its two flagship products: TerraUSD, a stablecoin pegged to the US dollar, and Luna, a companion token.
In 2022, the collapse of TerraUSD and Luna marked one of the most significant implosions in cryptocurrency history. TerraUSD’s failure to maintain its dollar peg triggered a chain reaction, wiping out $40 billion in market value.
South Korean authorities launched an investigation into Kwon, accusing him of fraud and violations of capital market laws. However, Kwon’s whereabouts remained a mystery for months. His run came to an end in 2023 when he was apprehended in Montenegro. He was found using a forged Costa Rican passport to flee to the UAE.
Extradition to the United States
The US Department of Justice has levelled nine charges against Kwon, including securities fraud, commodities fraud, and money laundering. A new indictment alleges that he misused funds derived from criminal activities through social media about various crypto products and platforms linked to Terraform Labs. The charges cover activities from 2022 to April 2024 and involve wire and crypto transfers exceeding $10,000 in criminally derived property.
Kwon’s extradition marked a significant milestone in international cooperation against financial crimes. Both South Korea and the US sought to bring him to justice, but US officials ultimately succeeded.
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 regarding 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 decentralised financial system to lure investors.”
Sentencing and penalties
Kwon and Terraform Labs faced a high-profile civil fraud lawsuit brought by the U.S. Securities and Exchange Commission (SEC), culminating in a staggering $4.47 billion settlement in June 2024. Subsequently, Terraform Labs has filed for bankruptcy, underscoring its dire financial predicament. The U.S. Attorney’s Office in New York will oversee Kwon’s prosecution, with a crucial status conference in the case scheduled for January 8, 2025.
US Attorney General Merrick Garland said on Thursday, “Do Kwon will now be held accountable in an American courtroom for, as alleged in court documents, his elaborate schemes involving Terraform’s cryptocurrencies, which resulted in over $40bn in investor losses. We secured this extradition despite Kwon’s alleged attempt to cover his tracks by laundering proceeds of his schemes and trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States. This extradition from Montenegro is an example of the Justice Department’s international partnerships, which enable the pursuit of criminals wherever they attempt to hide.”
In April, Kwon and Terraform Labs were found liable for fraud in a high-profile civil case initiated by the Securities and Exchange Commission. By June, the regulator had successfully secured a substantial $4.5 billion penalty to be paid by both the company and Kwon through a settlement. However, Terraform Labs sought Chapter 11 bankruptcy protection in January, highlighting the company’s severe financial distress.
