Do Kwon pleads not responsible to US fraud costs in $40 billion crypto collapse

By Luc Cohen

NEW YORK (Reuters) -Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that misplaced an estimated $40 billion in 2022, pleaded not responsible on Thursday to U.S. felony fraud costs 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 currencies, with securities fraud, wire fraud, commodities fraud and cash laundering conspiracy.

Kwon, 33, wore an olive inexperienced long-sleeved shirt and black sweatpants as his lawyer Andrew Chesley entered the plea at a listening to earlier than U.S. Justice of the Peace Choose Robert Lehrburger in Manhattan federal court docket.

The choose ordered Kwon detained after Chesley mentioned he wouldn’t search bail at the moment. Kwon took a replica of the 79-page indictment with him as U.S. marshals led him out of the courtroom. He’s anticipated again in court docket on Jan. 8.

Kwon had agreed final June to pay an $80 million civil positive and be banned from crypto transactions as a part of a $4.55 billion settlement that he and Terraform reached with the U.S. Securities and Change Fee.

In Thursday’s indictment, the Manhattan U.S. Lawyer’s workplace alleged Kwon misled buyers in 2021 about TerraUSD, a so-called stablecoin designed to take care of a price of $1.

Kwon allegedly advised buyers a pc algorithm generally known as “Terra Protocol” had restored the coin’s worth when it slipped beneath its peg in Could 2021, when the truth is he organized for a high-frequency buying and selling agency to secretly purchase thousands and thousands of {dollars} of the token to artificially prop up its worth.

Prosecutors mentioned that false declare and others drove retail and institutional buyers to purchase Terraform merchandise and increase the worth of Luna, a extra conventional token developed by Kwon that fluctuated in worth however was intently linked to TerraUSD, to $50 billion by the spring of 2022. 

“A lot of this progress adopted Kwon’s brazen deceptions about Terraform and its expertise,” the indictment mentioned. 

When TerraUSD’s worth started sliding once more in Could 2022, the buying and selling agency warned that propping it up “wasn’t so easy this time,” in keeping with the indictment.

TerraUSD and Luna crashed that month, dragging down the worth of different cryptocurrencies, together with bitcoin, and precipitated wider havoc within the crypto market.

Prosecutors didn’t establish the buying and selling agency. SEC attorneys mentioned of their civil case that Leap Buying and selling had propped up TerraUSD in Could 2021.

Leap didn’t instantly reply to requests for remark.  

MONTENEGRO DETENTION

In a trial on the SEC claims, a federal jury in Manhattan discovered Kwon and Terraform liable final April for defrauding cryptocurrency buyers.

Terraform’s lawyer had mentioned in closing arguments that the corporate and Kwon had been truthful about their merchandise and the way they labored, even after they failed.

Kwon didn’t attend that trial as a result of he had been detained in Montenegro since March 2023 on forgery costs. He was handed over to U.S. legislation enforcement officers on Tuesday at an airport in Podgorica, the capital of Montenegro.

Terraform declared chapter final January.

Kwon is one in every of a number of cryptocurrency moguls to face federal costs after a droop in digital token costs in 2022 prompted the collapse of numerous firms.

Sam Bankman-Fried, who based the trade FTX, is interesting his conviction and 25-year sentence final March for stealing $8 billion from clients.

Alex Mashinsky, the founder and former CEO of cryptocurrency lender Celsius Community, pleaded responsible final month to 2 counts of fraud.