South Korea’s Do Kwon pleads not guilty to US fraud charges in $55b crypto collapse

NEW YORK – Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that lost an estimated US$40 billion (S$55 billion) in 2022, pleaded not guilty on Jan 2 to US criminal fraud charges after being

extradited from Montenegro

this week.

Federal prosecutors in Manhattan on Jan 2 unsealed a nine-count indictment charging Kwon, who co-founded Singapore-based Terraform Labs and developed the TerraUSD and Luna currencies, with securities fraud, wire fraud, commodities fraud and money laundering conspiracy.

Kwon, 33, wore an olive green long-sleeved shirt and black sweatpants as his lawyer, Mr Andrew Chesley, entered the plea at a hearing before US Magistrate Judge Robert Lehrburger in Manhattan federal court.

The judge ordered Kwon detained after Mr Chesley said he would not seek bail at this time.

Kwon took a copy of the 79-page indictment with him as US marshals led him out of the courtroom. He is expected back in court on Jan 8.

Kwon had agreed last June to pay an US$80 million civil fine and be banned from crypto transactions as part of a US$4.55 billion settlement that he and Terraform reached with the US Securities and Exchange Commission (SEC).

In the Jan 2 indictment, the Manhattan US Attorney’s office alleged Kwon misled investors in 2021 about TerraUSD, a so-called stablecoin designed to maintain a value of US$1.

Kwon allegedly told investors a computer algorithm known as “Terra Protocol” had restored the coin’s value when it slipped below its peg in May 2021, when in fact he arranged for a high-frequency trading firm to secretly buy millions of dollars of the token to artificially prop up its price.

Prosecutors said that false claim and others drove retail and institutional investors to buy Terraform products and boost the value of Luna, a more traditional token developed by Kwon that fluctuated in value but was closely linked to TerraUSD, to US$50 billion by the spring of 2022.

“Much of this growth followed Kwon’s brazen deceptions about Terraform and its technology,” the indictment said.

When TerraUSD’s value began sliding again in May 2022, the trading firm warned that propping it up “wasn’t so simple this time”, according to the indictment.

TerraUSD and Luna crashed

that month, dragging down the value of other cryptocurrencies, including Bitcoin, and caused wider havoc in the crypto market. Prosecutors did not identify the trading firm. SEC lawyers said in their civil case that Jump Trading had propped up TerraUSD in May 2021.

Jump Trading did not immediately respond to requests for comment.

Montenegro detention

In a trial on the SEC claims, a federal jury in Manhattan found Kwon and Terraform liable in April 2024 for defrauding cryptocurrency investors. Terraform’s lawyer had said in closing arguments that the company and Kwon had been truthful about their products and how they worked, even when they failed.

Kwon did not attend that trial because he had been detained in Montenegro since March 2023 on forgery charges. He was handed over to US law enforcement officers on Dec 31 at an airport in Podgorica, the capital of Montenegro.

Terraform declared bankruptcy in January 2024.

Kwon is one of several cryptocurrency moguls to face federal charges after a slump in digital token prices in 2022 prompted the collapse of a number of companies.

Sam Bankman-Fried, who founded the exchange FTX, is appealing against his conviction and 25-year sentence in March 2024 for stealing US$8 billion from customers.

Alex Mashinsky, the founder and former chief executive of cryptocurrency lender Celsius Network, pleaded guilty in December to two counts of fraud. REUTERS