Do Kwon Pleads Not Guilty to US Charges Over Terra Collapse
AInvestThursday, Jan 2, 2025 1:41 pm ET
3min read
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Do Kwon, the South Korean cryptocurrency entrepreneur behind the TerraUSD and Luna currencies, pleaded not guilty on Thursday to criminal fraud charges in a U.S. court. Kwon, who co-founded Terraform Labs, is accused of orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities. The SEC alleges that Kwon and Terraform Labs misled investors about the stability of TerraUSD and the use of the Terraform blockchain by the Chai app, ultimately leading to the collapse of both assets and causing devastating losses for investors.



Kwon, 33, 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 in the space. Sam Bankman-Fried, the founder of the exchange FTX, is appealing his conviction and 25-year sentence for stealing $8 billion from customers. Alex Mashinsky, the founder and former CEO of cryptocurrency lender Celsius Network, pleaded guilty last month to two counts of fraud.

The SEC's complaint alleges that Terraform and Kwon raised billions of dollars from investors by offering and selling an interconnected suite of crypto asset securities, many in unregistered transactions. These included "mAssets," security-based swaps designed to pay returns by mirroring the price of stocks of U.S. companies, and TerraUSD (UST), a crypto asset security referred to as an "algorithmic stablecoin" that supposedly maintained its peg to the U.S. dollar by being interchangeable for another of the defendants' crypto asset securities, LUNA. The SEC also alleges that Terraform and Kwon offered and sold investors other means to invest in their crypto empire, including the crypto asset security tokens MIR, or "mirror" tokens, and LUNA itself.



The SEC's complaint further alleges that Terraform and Kwon marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value. For example, they touted and marketed UST as a "yield-bearing" stablecoin, which they advertised as paying as much as 20 percent interest through the Anchor Protocol. The SEC's complaint also alleges that, while marketing the LUNA token, Terraform and Kwon repeatedly misled and deceived investors that a popular Korean mobile payment application used the Terraform blockchain to settle transactions that would accrue value to LUNA. Meanwhile, Terraform and Kwon also allegedly misled investors about the stability of UST. In May 2022, UST depegged from the U.S. dollar, and the price of it and its sister tokens plummeted to close to zero.

The outcome of Kwon's trial will have significant implications for the crypto industry, as it will set a precedent for the regulation of stablecoins and other crypto assets. The verdict could also influence public perception of crypto regulation and investor protection, potentially impacting investor decisions and market dynamics. The SEC's approach to regulating stablecoins and other crypto assets may also be influenced by the verdict, with potential changes in the regulatory environment and infrastructure of the crypto market.
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