Kwon was charged with securities, commodities and wire fraud, among other charges.
Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De. Terraform Labs founder Do Kwon was (finally) extradited to the U.S. after nearly two years of back-and-forth among the various components of Montenegro's legal system. He now faces a multitude of charges tied to the operation and later collapse of the Terra/Luna ecosystem.
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Do Kwon was extradited to the U.S. at the very end of 2024, and is now being held without bail in a New York area facility as he awaits trial on various fraud and conspiracy charges.
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The Terra/Luna ecosystem's dramatic, near-overnight collapse in 2022 precipitated much of the broader crypto ecosystem meltdown through the rest of that year. While Terraform Labs and Kwon were already found civilly liable for fraud in a case brought by the U.S. Securities and Exchange Commission, this is the first time Kwon himself will be present for a trial.
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A quick refresher: TerraUSD (UST) was an algorithmic stablecoin pegged to the value of one U.S. dollar. It maintained this value through Luna (LUNC), the ecosystem's second token, which had a free-floating value. Luna's price would rise or fall and holders would still be able to swap for $1 worth of UST.
You can click here to read more about how this system worked.
In December 2021, CoinDesk's Christine Lee asked Kwon whether a major crisis might destabilize the assumptions underlying Terra/Luna. In response, Kwon said, "the same argument could apply to any currency regime. For the same reason, would you deprive developing countries of the ability to have sovereign monetary policy? And I think the answer is no."
A few months later, UST lost its peg and Luna lost billions in market capitalization. Overall, tens of billions of value disappeared within a few short days.
Kwon now faces securities fraud, wire fraud, commodities fraud, conspiracy and market manipulation charges for his role in Terraform Labs and the Terra system. According to an indictment unsealed earlier this week — though apparently returned in March 2023 — Kwon is accused of sharing "a false and misleading statement" during a TV interview about Terra's adoption. Prosecutors allege he defrauded investors into buying tokens issued by Terraform Labs, including Luna, which is described as a "digital security."
Kwon also allegedly worked to manipulate the price of Terra, prosecutors with the Southern District of New York charged.
In a hearing earlier this week, Assistant U.S. Attorney Jared Lenow told a federal judge that prosecutors already had six terabytes of data to produce during discovery, but needed time to access four different cell phones and view encrypted information, CoinDesk's Cheyenne Ligon reported.
A trial is tentatively set for next January, though this may change. Kwon has pleaded not guilty to all charges.
Kwon was already found civilly liable for fraud in a case brought by the U.S. Securities and Exchange Commission, and agreed to a $4.5 billion settlement. |
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If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Bluesky @nikhileshde.bsky.social. You can also join the group conversation on Telegram. See y’all next week! |
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