Do Kwon Denies Charges in First US Court Appearance

• Do Kwon, Terraform Labs co-founder, pleads not guilty to U.S. fraud charges over the $40 billion TerraUSD stablecoin collapse.
• The U.S. alleges Kwon misled investors in a multi-billion-dollar securities fraud; a trial conference is set for January 8.

Do Kwon, the co-founder of Terraform Labs, pleaded not guilty on Thursday to fraud charges linked to the $40 billion collapse of the TerraUSD stablecoin, according to Bloomberg. The 33-year-old appeared before U.S. Magistrate Judge Robert Lehrburger in Manhattan, where he agreed to remain in custody without bail. 

His legal troubles date back to March 2023, when he was arrested in Montenegro for traveling with a fake passport. Despite Kwon’s attempts to argue for extradition to his home country, South Korea, Montenegro’s Supreme Court ultimately approved his extradition to the U.S. in December 2024. 

The extradition decision followed months of legal wrangling between South Korea and the United States. Kwon himself had argued for South Korea, citing typically less severe penalties for financial crimes there. However, Montenegro leaned toward the U.S., a key security partner. 

His case will be prosecuted by the Manhattan U.S. attorney’s office, which recently secured convictions against other crypto figures like FTX co-founder Sam Bankman-Fried.

Terraform Fallout — Allegations from DOJ and SEC

Kwon’s troubles stem from the implosion of Terraform Labs’ TerraUSD stablecoin and its sister token, Luna, in May 2022. Market confidence in the tokens evaporated within 48 hours, wiping out over 99% of Terraform Labs’ value. The crash sparked a broader crypto catastrophe, wiping out $40 billion in market value and plunging other tokens like Bitcoin and Ethereum into chaos.

The U.S. Department of Justice alleges that Kwon misled investors about TerraUSD’s stability and Terraform’s blockchain adoption. Prosecutors accuse him of orchestrating a massive securities fraud scheme. “He deceived investors,” they claim, about the technology underpinning Terraform and the applications using it. His plea denies wrongdoing so far, but it remains unclear if his stance will shift as the trial proceeds.

During his time in Montenegro, Kwon also faced a civil fraud suit by the U.S. Securities and Exchange Commission (SEC). In that case, Terraform Labs was ordered to pay $4.47 billion, though the company later filed for bankruptcy.

Can Kwon Escape Justice?

Kwon’s arrest and trial symbolize the reckoning for a sector that saw meteoric rises and catastrophic falls. Terraform’s collapse played a direct role in the downfall of crypto exchange FTX, whose founder, Sam Bankman-Fried, received a 25-year prison sentence.

Kwon had been a central figure in Terraform, owning 92% of the company and publicly calling himself a “Lunatic” in his support for the Luna token. The TerraUSD crash not only shattered Terraform but also sent shockwaves across smaller crypto firms, some of which went under entirely.

A court conference is scheduled for January 8 as the U.S. justice system gears up to hold Kwon accountable for what it calls “orchestrating a multi-billion-dollar crypto asset securities fraud.” While he denies the allegations, the case against him is significant for a crypto industry still grappling with trust issues.