South Korea’s Do Kwon Pleads Not Guilty to US Fraud Charges Over $55 Billion Cryptocurrency Collapse, World News

NEW YORK – Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that lost an estimated US$40 billion (S$54.6 billion) in 2022, pleaded not guilty on Thursday (Jan 2) to the charges. of criminal fraud in the United States after being extradited from Montenegro this week.

Federal prosecutors in Manhattan on Thursday unsealed a nine-count indictment charging Kwon, who co-founded Singapore-based Terraform Labs and developed the TerraUSD and Luna coins, with securities fraud, wire fraud, commodities fraud and money laundering conspiracy.

Kwon, 33, was wearing an olive green long-sleeved shirt and black sweatpants when his attorney Andrew Chesley pleaded guilty at a hearing before U.S. Magistrate Judge Robert Lehrburger in Manhattan federal court.

The judge ordered Kwon detained after Chesley said he would not ask for bail at this time. Kwon took a copy of the 79-page indictment with him as U.S. Marshals led him out of the courtroom. He is expected to return to court on January 8.

Kwon had agreed last June to pay an $80 million civil penalty and be prohibited from engaging in crypto transactions as part of a $4.55 billion settlement he and Terraform reached with the U.S. Securities and Exchange Commission.

In Thursday’s indictment, the Manhattan U.S. Attorney’s office alleged that Kwon misled investors in 2021 about TerraUSD, a so-called stablecoin designed to maintain a value of $1.00.

Kwon allegedly told investors that a computer algorithm known as “Terra Protocol” had restored the currency’s value when it fell below its parity in May 2021, when in reality he arranged for a high-frequency trading company to secretly purchase millions of dollars of the token to artificially prop up its price.

Prosecutors said that false claim and others led retail and institutional investors to buy Terraform products and drive up the value of Luna, a more traditional token developed by Kwon whose value fluctuated but was closely tied to TerraUSD, to $50 billion. dollars by spring 2022. .

“Much of this growth was due to Kwon’s blatant deceptions about Terraform and its technology,” the indictment says.

When TerraUSD’s value began to fall again in May 2022, the trading company warned that shoring it up “was not so simple this time,” according to the indictment.

TerraUSD and Luna collapsed that month, dragging down the value of other cryptocurrencies, including bitcoin, and wreaking broader havoc on the cryptocurrency market.

Prosecutors did not identify the business company. SEC lawyers said in their civil case that Jump Trading had propped up TerraUSD in May 2021.

Jump did not immediately respond to requests for comment.

Detention in Montenegro

In a trial over the SEC’s claims, a federal jury in Manhattan found Kwon and Terraform liable last April for defrauding cryptocurrency investors.

Terraform’s lawyer had said in his closing arguments that the company and Kwon had been honest about their products and how they worked, even when they failed.

Kwon did not attend that trial because he had been detained in Montenegro since March 2023 on forgery charges. He was handed over to American law enforcement officials on Tuesday at an airport in Podgorica, the capital of Montenegro.

Terraform filed for bankruptcy last January.

Kwon is one of several cryptocurrency tycoons facing federal charges after a drop in digital token prices in 2022 caused several companies to collapse.

Sam Bankman-Fried, who founded the FTX exchange, is appealing his conviction and 25-year sentence last March for stealing $8 billion from clients.

Alex Mashinsky, founder and former CEO of cryptocurrency lender Celsius Network, pleaded guilty last month to two counts of fraud.

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