Former Terra CEO Do Kwon Enters Not Guilty Plea In Landmark $40 Billion Crypto Trial
Do Kwon, a South Korean cryptocurrency entrepreneur and co-founder of Terraform Labs, pleaded not guilty to a series of criminal fraud charges in Manhattan federal court on Thursday.
Just days after he was extradited from Montenegro, where he has been detained for more than a year. His case revolves around the collapse of TerraUSD and Luna (LUNC), which together lost about $40 billion in 2022.
Ordered to remain in custody after appearing in court
According to Reuters ReportFederal prosecutors unsealed a nine-count indictment charging Quan with multiple crimes, including securities fraud, wire fraud, commodities fraud and conspiracy to commit money laundering.
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Quan, wearing an olive green long-sleeved shirt and black sweatpants, appeared in court with his lawyer, Andrew Chesley, who said they would not seek bail at this time.
After Kwon entered his guilty plea, U.S. Magistrate Judge Robert Lehrberg reportedly ordered his continued detention. Do Kwon left court with a copy of the 79-page indictment and is scheduled to return for another hearing on Jan. 8.
The consequences of Do Kwon’s alleged fraud and market manipulation
In June, Kwon reached a civil settlement with the U.S. Securities and Exchange Commission (SEC), agreeing to pay an $80 million fine and accept a ban from participating in cryptocurrency trading. The settlement is part of a broader $4.55 billion settlement involving management misconduct at Terraform Labs.
The indictment details how Kwon allegedly misled investors about the stability of TerraUSD, a stablecoin designed to maintain the value of $1. In May 2021, when the stablecoin’s value began to fall, Kwon reportedly claimed that a computer algorithm called the “Terra Protocol” had successfully restored its peg.
In fact, prosecutors accuse Do Kwon of masterminding a scheme involving high-frequency trading firms to secretly purchase millions of dollars of TerraUSD to artificially inflate its price.
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This reportedly prompted retail and institutional investors to purchase Terraform products, significantly increasing the value of Luna, another token pegged to TerraUSD, to as much as $50 billion by spring 2022. “This increase was due in large part to Kwon’s brazenness,” the indictment states. Deceptive practices regarding Terraform and its technology. “
However, things took a turn for the worse in May 2022, and the value of TerraUSD began to fall again. Trading firms that had previously supported its value warned Kwon that maintaining its value “will not be so simple this time.”
The subsequent collapse of TerraUSD and Luna sent shockwaves through the cryptocurrency market, causing investors to suffer significant losses and leading to a broader downturn that affected other digital assets including Bitcoin (BTC).
Although prosecutors have not revealed the identity of the trading company involved, SEC lawyers have previously said that Jump Trading played a role in supporting TerraUSD at its peak in May 2021.
Featured images from DALL-E, charts from TradingView.com
