Do Kwon could face up to 130 years in prison

On January 2, 2025, Do Kwon, the founder of Terraform Labs and the cause of the collapse of the two cryptocurrencies TerraUSD and LUNA, denied allegations of criminal fraud in the United States. He was extradited from Montenegro after being detained there on charges of falsifying documents.

At the trial in Manhattan, federal prosecutors announced an indictment of nine counts, including securities fraud, cyber fraud, commodity fraud and conspiracy to launder money. Kwon's lawyer, Andrew Chesley, announced no bail request at this time, and Kwon will return to court on January 8.

According to the indictment, Kwon deceived investors in 2021 about TerraUSD, a stablecoin designed to maintain value at $1. He allegedly claimed that an algorithm called “Terra Protocol” restored the currency's value when it depreciated, when in fact, he arranged for a high-frequency trading firm to secretly buy millions of dollars of TerraUSD in order to artificially push up its value.

These false statements, along with other misleading information, prompted investors to pour money into Terraform Labs and increased Luna's value to $50 billion by early 2022. However, when TerraUSD continued to fall in price in May 2022, the system was unsalvageable, leading to the collapse of TerraUSD and Luna, which followed the plunge of the crypto market.

In addition, Kwon is accused of manipulating Mirror Protocol, a synthetic stock trading platform, by using trading bots to control prices and inflate user metrics. He also falsely claimed that the Terra blockchain is used in the Chai payment app, while Chai actually relies on traditional financial systems.

Genesis stablecoins, believed to be used to develop the Terra ecosystem, were also used by Kwon to carry out fake transactions aimed at creating false beliefs about the stability and effectiveness of the platform.

Earlier, in June 2023, Do Kwon agreed to pay a fine of $80 million and was banned from engaging in crypto transactions in a settlement with the U.S. Securities and Exchange Commission (SEC). However, he did not attend the relevant civil trials due to being detained in Montenegro since March 2023. Terraform Labs also declared bankruptcy in January 2023.

Each of the charges that Kwon is accused of carries a maximum sentence of between five and 20 years in prison, with a total maximum penalty of up to 130 years in prison. The FBI investigation, conducted with the support of international agencies such as Interpol, the Ministry of Justice of Montenegro, and financial regulators such as the SEC and the CFTC, demonstrates its commitment to catching and prosecuting international financial offenders.