Terraform Labs and Do Kwon Found  Liable in U.S. Civil Fraud Trial

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Key Takeaways

  • The Manhattan jury delivered the verdict in federal court after a two-week trial
  • Kwon was not in Manhattan for his civil trial as he is still in Montenegro 

In a recent jury trial, Terraform Labs and its co-founder, Do Kwon, were found liable on civil fraud charges brought by the U.S. Securities and Exchange Commission (SEC) concerning the collapse of the Terra ecosystem in May 2022. 

The verdict, delivered after a two-week trial in federal court, reflects allegations that Terraform Labs and Kwon misled investors regarding the stability of their cryptocurrency, Terra USD (UST), and the functionalities of the Terra blockchain.

The SEC’s charges, filed in February 2023, followed the dramatic decline of Terra USD, resulting in losses exceeding $50 billion. The agency accused Terraform and Kwon of deceiving investors through unregistered transactions and false claims about the capabilities of the Terra blockchain. 

Specifically, the SEC alleged that Kwon and Terraform secretly arranged for a third party to purchase large amounts of TerraUSD to support its price when the stablecoin slipped from its peg in May 2021. Furthermore, Kwon falsely attributed the recovery to the reliability of TerraUSD’s algorithms, according to the regulator.

Additionally, the SEC claimed that Kwon and Terraform falsely touted Terraform’s blockchain as being utilized to process and settle transactions between customers and merchants on the Chai payment app. 

Kwon’s legal troubles began with his arrest at Montenegro’s Podgorica Airport in March 2023, where he was apprehended while attempting to travel to Dubai using forged Costa Rican documents. Subsequently, he faced a litany of charges, including securities fraud, commodities fraud, wire fraud, and conspiracy. In June 2023, Kwon and Terraform’s former finance officer were sentenced to four months in prison by a Montenegrin court for passport forgery. Despite appeals, the court upheld the ruling and approved Kwon’s extradition to the U.S. or South Korea.

A significant development occurred on March 5, 2024, when the Court of Appeals of Montenegro overturned the decision to extradite Kwon to the U.S., ordering a reassessment to determine his extradition destination.

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Saniya Raahath
Saniya Raahath

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