Do Kwon, the central figure behind the collapse of TerraUSD (UST) and Luna cryptocurrencies, has been charged by U.S. authorities following the significant financial fallout in May 2022. Here are further details on the case:
- Charges: Kwon faces a series of charges including securities fraud, wire fraud, commodities fraud, conspiracy to defraud, conspiracy to engage in market manipulation, and money laundering conspiracy. The allegations center around claims that Kwon and Terraform Labs defrauded investors by providing misleading information about the stability and operational mechanics of TerraUSD and its associated token, Luna.
- Alleged Misrepresentations: The Securities and Exchange Commission (SEC) and federal prosecutors allege that Kwon falsely represented that UST was algorithmically stable, capable of maintaining its $1 peg without external intervention. However, evidence suggests that in May 2021, when UST depegged, Kwon had to rely on a third party, identified as Jump Crypto, to buy large volumes of UST to restore its peg, an action not disclosed to investors.
- Collapse Impact: The collapse of TerraUSD and Luna led to an estimated $40 billion in investor losses, contributing to a broader crypto market downturn. It directly impacted several other crypto firms like Three Arrows Capital, Celsius Network, and indirectly affected entities like FTX due to the interconnected nature of crypto investments.
- Arrest and Extradition: After months of being on the run, Kwon was arrested in Montenegro in March 2023 for traveling with forged documents. After a legal tussle between South Korea and the U.S. for his extradition, he was eventually extradited to the United States to face trial.
- Legal Proceedings: Despite the civil fraud verdict against him and Terraform Labs in April 2024, where they were found liable for misleading investors, Kwon has pleaded not guilty to the criminal charges. His trial in the U.S. involves a significant amount of evidence, including testimonies from former employees and whistleblowers at companies associated with Terraform Labs.
- Settlement and Penalties: Before his criminal trial, Kwon and Terraform Labs agreed to a settlement with the SEC in May 2024, which included them paying over $4.5 billion. However, this settlement primarily positions the SEC as an unsecured creditor in Terraform’s bankruptcy, with Kwon ordered to surrender around $7 million in assets he controls.
- Current Status: Kwon’s not guilty plea was entered in a Manhattan federal court, signaling the beginning of a criminal trial where the legal system will further explore the allegations against him, potentially leading to a lengthy legal battle.
These details reflect the complexity and severity of the charges against Do Kwon, highlighting the significant impact of the Terra ecosystem’s collapse on the cryptocurrency market and its investors.
Do Kwon pleads not guilty to US fraud charges over $40 billion Terra collapse.