After extradition to the United States, disgraced founder of Terraform Labs Do Kwon pleads not guilt to US fraud charges
Do Kwon, the disgraced co-founder of collapsed crypto company Terraform Labs, has made his first appearance in a US courtroom.
The Associated Press reported that Do Kwon (also known as Do Hyeong Kwon) pleaded not guilty on Thursday to a freshly unsealed indictment.
Kwon entered the plea in Manhattan federal court two days after his extradition from Montenegro, following a protracted legal battle.
Not guilty
According to the AP, the freshly unsealed indictment alleges Do Kwon lied to investors from 2018 to 2022 to fool them into pouring money into Terraform Labs PTE Ltd, the Singapore crypto firm he co-founded.
In February 2023 the SEC had charged Terraform Labs and Do Kwon with orchestrating a multi-billion dollar crypto asset securities fraud that lead to the 2022 collapse of the $40 billion digital asset project – which included the stablecoin Terra and its sister token Luna.
It is thought that nearly 250,000 people had invested in Terraform Labs’ coins, and blockchain analytics firm Elliptic estimated that investors in TerraUSD and Luna lost an estimated $42 billion – a far bigger number than the recent trial of FTX’s Sam Bankman-Fried.
In December 2023 a US federal judge ruled that Do Kwon and Terraform Labs had violated US law by failing to register the two digital currencies that had collapsed in 2022.
A civil fraud trail against Do Kwon and Terraform Labs began in New York on 26 March 2024, and concluded in April 2024, when both were found liable on civil fraud charges.
The civil trial saw a Manhattan jury conclude that both had misled investors about the stability of their so-called “algorithmic” native stablecoin, Terra USD (UST), and the use cases for the Terra blockchain.
They concluded that “Do Kwon and Terra orchestrated one of the largest securities frauds in US history by, among other things, falsely claiming that they had achieved the Holy Grail of crypto: a non-illicit use case.”
In April 2024 the SEC had asked US District Judge Jed Rakoff in Manhattan to impose $5.3 billion in fines on Terraform Labs and Do Kwon.
In June 2024 Terraform Labs and Do Kwon agreed to pay more than $4.5 billion following the unanimous jury verdict in April.
Court appearance
Do Kwon was eventually extradited from Montenegro, and he did not speak during his court appearance on Thursday, except to acknowledge that he understood English, the Associated Press reported.
His lawyer, Andrew Chesley, reportedly entered not guilty pleas to two separate versions of the indictment charging him with conspiracy, along with commodities, securities and wire fraud.
A money laundering charge was added Thursday.
Chesley and another defense lawyer, David Patton, declined comment as they emerged from the courtroom, AP noted.
Their client was returned to a federal jail after the lawyers consented to his detention.
The AP reported that the superseding indictment had accused Kwon of deceiving investors by telling them that Terraform had developed novel reliable financial technologies enabling it to turn blockchain technology into a self-contained decentralised financial world with its own money, payment system, stock market and savings bank.
“In fact,” the indictment reportedly said, “Kwon’s constructed financial world was built on lies and manipulative and deceptive techniques used to mislead investors, users, business partners, and government regulators” about 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 in order to lure investors,” it reportedly added.