GENIUS Act May Alter Charges Against Terraform Co-Founder Do Kwon

Judge Paul Engelmayer, overseeing the criminal case against Do Kwon, co-founder of Terraform Labs, has indicated that the GENIUS Act could potentially impact the charges against Kwon, particularly those related to securities fraud. During a recent hearing, the judge expressed that he is mindful of the GENIUS Act, suggesting that its provisions could influence the legal proceedings. The GENIUS Act, which stands for the "Guiding and Establishing National Innovation for US Stablecoins," is a piece of legislation aimed at providing clarity and regulation within the cryptocurrency industry. The act seeks to establish a framework for the classification and regulation of digital assets, which could significantly alter the legal landscape for cases involving cryptocurrency fraud.

The implications of the GENIUS Act on Kwon's case are multifaceted. The act could potentially redefine what constitutes a security in the context of digital assets, which would directly affect the charges of securities fraud leveled against Kwon. This redefinition could either strengthen or weaken the prosecution's case, depending on how the act is interpreted and applied. Additionally, the act could provide new legal avenues for defense strategies, potentially leading to a change in the charges or even a dismissal of certain counts.

Kwon, who faces multiple felony charges related to the collapse of the Terra ecosystem, appeared at a status conference in Manhattan federal court. The judge also mentioned the possibility that the outcome of a separate civil case, in which a jury found Terraform Labs and Kwon liable for fraud, could impact the criminal proceedings. Kwon’s lawyers have argued that the civil ruling should not automatically apply in the criminal trial.

Kwon was arrested in Montenegro in March 2023 on passport forgery charges and was extradited to the U.S. to face criminal charges. U.S. prosecutors allege that Kwon used “manipulative and deceptive techniques” to mislead investors, business partners, and regulators, creating what they described as a “financial world built on lies.”

In addition to the criminal case, Kwon also faces civil charges brought by the U.S. Securities and Exchange Commission (SEC). The SEC accused Kwon and Terraform of violating federal securities laws by engaging in fraud connected to the buying and selling of Terraform securities. Meanwhile, lawmakers continue to debate broader crypto regulation. Alongside the GENIUS Act, the STABLE Act — a separate bill focused on transparency and oversight for stablecoins — is also under review. Any legislation that passes could influence how agencies handle digital asset enforcement going forward.

Legal teams are already trying to anticipate the impact of potential legislation. Earlier this year, former lawyers requested a delay in a trial based on the possibility that President Trump could change securities rules. That strategy didn’t pay off — the defendant was found guilty on all counts, including fraud and money laundering. The potential impact of the GENIUS Act on Kwon's case highlights the evolving nature of cryptocurrency regulation and its implications for legal proceedings. As the industry continues to grow and attract more attention, it is likely that we will see further developments in the legal and regulatory landscape. The outcome of Kwon's case could set a precedent for future cases involving cryptocurrency fraud, making it a significant milestone in the regulation of digital assets.