A jury concluded that Do Kwon and Terraform Labs deceived investors prior to the collapse of the company’s cryptocurrency
In Manhattan, a jury found a former crypto CEO based in Singapore liable for civil fraud on Friday. The jury agreed with the US Securities and Exchange Commission that both the CEO and his firm misled investors before the 2022 collapse of the company’s cryptocurrency, which caused turmoil in cryptocurrency markets.
The jury reached this decision in federal court after a two-week trial, following closing arguments earlier in the day. Terraform Labs founder Do Kwon did not attend the trial, as he has been detained in Montenegro since March 2023. He was apprehended while attempting to flee to Dubai, using forged Costa Rican travel documents, to evade authorities in multiple countries.
In Manhattan, a jury found a former crypto CEO based in Singapore liable for civil fraud on Friday. The jury agreed with the US Securities and Exchange Commission that both the CEO and his firm misled investors before the 2022 collapse of the company’s cryptocurrency, which caused turmoil in cryptocurrency markets.
The jury reached this decision in federal court after a two-week trial, following closing arguments earlier in the day. Terraform Labs founder Do Kwon did not attend the trial, as he has been detained in Montenegro since March 2023. He was apprehended while attempting to flee to Dubai, using forged Costa Rican travel documents, to evade authorities in multiple countries.
The company released a statement following the verdict, expressing disappointment and stating that they do not believe the verdict is supported by the evidence. They maintain that the SEC lacks the legal authority to bring this case and are considering their options.
Kwon, who was arrested in Montenegro in March 2023, did not attend the trial that commenced on March 25. Both the US and South Korea, of which Kwon is a citizen, have requested his extradition for criminal charges.
Montenegro’s highest court is reviewing the extradition requests. Kwon’s legal team prefers extradition to South Korea, hoping for a more lenient sentence. However, Montenegro’s government intends to approve extradition to the US, according to Bloomberg.
Kwon created the cryptocurrencies TerraUSD and Luna. Luna, a more conventional token, was closely tied to TerraUSD but experienced value fluctuations.
The SEC estimates that investors lost over $40 billion on both tokens when the peg of TerraUSD to the dollar could not be sustained in May 2022.
The collapse of these tokens also impacted the value of other cryptocurrencies, such as bitcoin, and resulted in broader turmoil in the crypto market, prompting several companies to declare bankruptcy in 2022.
In January, Terraform itself filed for bankruptcy protection.
The SEC alleges that Kwon and Terraform arranged for a third party to buy large amounts of TerraUSD to support its price when it deviated from its peg in May 2021. Kwon falsely credited the recovery to the robustness of TerraUSD’s algorithms, as per the regulator.
Terraform’s lawyer stated on Friday that the company had disclosed the need to defend TerraUSD’s peg in May 2021. He mentioned that a Korean payments app utilized the company’s blockchain, but the specific technicalities of its use were not material to investors.
US financial regulators have intensified efforts to crackdown on dubious cryptocurrency tycoons recently. Former FTX CEO Sam Bankman-Fried was sentenced to 25 years in federal prison for wire fraud and conspiracy to launder money last week. His company is currently embroiled in contentious bankruptcy proceedings.
Gurbir Grewal, director of the SEC’s division of enforcement, stated on Friday, “The defendants caused devastating losses for investors and wiped out tens of billions of market value nearly overnight. For all of crypto’s promises, the lack of registration and compliance have very real consequences for real people. As the hard work of our team shows, we will continue to use the tools at our disposal to protect the investing public, but it is high time for the crypto markets to come into compliance.”