Federal Jury Finds South Korean Crypto Mogul Do Kwon Guilty of Massive Fraud Scheme

A federal jury in New York has found South Korean crypto magnate Do Kwon and his company, Terraform Labs, liable for defrauding investors in a civil suit brought by the Securities and Exchange Commission. The jury's verdict follows a two-hour deliberation and aligns with the SEC's claim that Kwon and Terraform engaged in a fraudulent scheme involving TerraUSD (UST) and LUNA crypto tokens, resulting in billions of dollars in investor losses.

Federal Jury Finds South Korean Crypto Magnate Do Kwon Liable for Massive Fraud Scheme

In a landmark verdict, a federal jury in the Southern District of New York has ruled that South Korean crypto magnate Do Kwon and his company, Terraform Labs, are liable for engaging in a fraudulent scheme that resulted in the collective loss of billions of dollars for investors. The verdict was rendered after a civil trial initiated by the Securities and Exchange Commission (SEC) in February 2023.

The SEC's complaint alleged that Kwon and Terraform had "perpetrated a fraudulent scheme that led to the loss of $40 billion of market value" by misrepresenting the prospects and stability of cryptoassets issued by the company. The allegations stemmed from the collapse of Terraform's stablecoin, TerraUSD (UST), and its associated token, LUNA, in May 2022, which sent shockwaves through the crypto industry.

Kwon, who fled authorities following the tokens' collapse, is currently facing criminal charges in both the United States and South Korea. He was arrested in Montenegro last year and released on bail while awaiting extradition. In his absence, the jury heard testimony from investors who lost substantial sums in the Terraform collapse, as well as whistleblowers from companies that had partnered with Terraform.

After deliberating for less than two hours, the jury concluded that Kwon and Terraform had engaged in civil fraud by making false claims and misleading investors about the Terraform cryptotoken. The SEC hailed the verdict as a significant victory for investors and underscored the consequences of operating unregistered and non-compliant crypto companies.

"For all of crypto's promises, the lack of registration and compliance have very real consequences for real people," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement. The verdict against Kwon and Terraform follows the recent sentencing of Sam Bankman-Fried, the founder of the defunct crypto exchange FTX, marking a significant milestone in the ongoing efforts to regulate and enforce accountability in the crypto industry.

Kwon founded Terraform in 2018 with the aim of creating a stablecoin that would provide a safe haven for investors from the volatility of other crypto assets. The UST stablecoin was pegged to the US dollar through a unique algorithmic mechanism tied to the LUNA token. However, experts have questioned the viability of such a complex system, and the UST-LUNA collapse in May 2022 exposed its inherent vulnerabilities.

"Many smart people believed it would work," said Noelle Acheson, a former crypto analyst at Genesis Trading, referring to the Terraform mechanism. "Hopefully, people will be reminded to do more homework and ask better questions to avoid getting drawn into rather flimsy claims again."

The SEC's ongoing investigation into the Terraform collapse is expected to shed further light on the extent of the fraud and the regulatory challenges posed by the growing crypto industry. The verdict against Kwon and Terraform serves as a stark reminder of the importance of investor protection and the need for robust regulation in the digital asset space.