Key Takeaways
Do Kwon, the co-founder of Terraform Labs, has pleaded not guilty to fraud charges in the United States related to the collapse of TerraUSD and Luna. He is accused of misleading investors about the stability and functionality of TerraUSD.
Do Kwon appeared in a Manhattan federal court after being extradited from Montenegro. His not guilty plea was entered in response to multiple charges, including securities fraud, wire fraud, commodities fraud, and conspiracy to defraud and engage in market manipulation.
Prosecutors claim that Kwon deceived investors by falsely representing TerraUSD’s ability to maintain its peg through algorithmic means. They allege that significant external intervention was required, including secret agreements with high-frequency trading firms.
Kwon’s defense team argues that the collapse of the tokens was due to market dynamics and not fraudulent activity. They emphasize that Kwon was transparent about the investment risks involved.
If convicted on all charges, Kwon could potentially face a prison sentence of over 100 years, although actual sentences are typically lower than the maximum penalties. The date for his next court appearance has not yet been determined.
In April 2024, a New York jury found Terraform Labs and Do Kwon guilty of fraud in a case brought by the SEC for misrepresenting the stability of TerraUSD.
Last month, Terraform Labs and Do Kwon reached a preliminary settlement with the SEC regarding civil fraud charges stemming from the collapse of TerraUSD. The settlement includes financial penalties and operational restrictions for Kwon.
In May 2024, Terraform Labs’ lawyers contested the SEC’s charges, arguing that the majority of their token sales took place outside of the United States and that the evidence did not support the alleged financial losses.
