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Journalist
Hassan Shittu
Journalist
Hassan Shittu
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The co-founder of Terraform Labs, Do Hyeong Kwon, was extradited to the United States on December 31st last year and now faces multiple federal fraud charges that could lead to a prison sentence of up to 130 years.
Kwon, a South Korean national, was apprehended in Montenegro after attempting to flee using a fraudulent passport and was transferred to the U.S. to stand trial in Manhattan.
The Department of Justice (DOJ) alleges that between 2018 and 2022, Kwon orchestrated one of the most elaborate schemes ever seen.
This scheme involves false claims, market manipulation, and misappropriation of funds, which resulted in over $40 billion in investor losses following the collapse of Terraform’s stablecoin, UST, and its sister cryptocurrency, Luna.
Do Kwon’s Scheme: Is He Getting 130 Years Of Prison Time?
Terraform Labs, co-founded by Do Kwon in 2018, was marketed as a revolutionary blockchain platform that aimed to create a decentralized financial ecosystem through stablecoins and decentralized applications (dApps).
At the center of Terraform’s ecosystem was TerraUSD (UST), an algorithmic stablecoin that maintained its peg to the U.S. dollar through a mechanism involving Luna, another native token.
Investors were drawn to the promise of a stable, decentralized financial system that could rival traditional banking.
However, cracks in the facade began to show in May 2021 when UST briefly lost its peg.
According to a DOJ press release, Kwon conspired with high-frequency trading firms to artificially stabilize UST during this period, masking the systemic flaws in Terraform’s protocol.
Despite these interventions, by May 2022, UST’s peg broke again, triggering a catastrophic collapse of both UST and Luna.
This collapse erased more than $40 billion in market value and devastated countless investors globally.
In the aftermath, Kwon allegedly attempted to cover up his involvement by laundering proceeds through various blockchains, exchanges, and Swiss bank accounts.
The DOJ’s indictment lists multiple misrepresentations made by Kwon, including false claims about the governance of the Luna Foundation Guard (LFG), the utility of the Mirror Protocol, and the purported use of the Terra blockchain by Korean payment-processing application Chai.
These misrepresentations depicted stability and real-world application, convincing investors of Terraform’s ecosystem’s viability.
However, the DOJ contends that Kwon knew these claims were false and that he manipulated market metrics to sustain investor confidence.
Legal Ramifications and Potential Sentencing
Upon his arrival in the United States, Do Kwon appeared in a Manhattan court before Magistrate Judge Robert W. Lehrburger.
His case has been assigned to U.S. District Court Judge John P. Cronan. The initial conference is scheduled for January 8, 2025.
The charges against Kwon include two counts of commodities fraud, two counts of securities fraud, two counts of wire fraud, and two counts of conspiracy to commit fraud and market manipulation.
If convicted on all counts, Kwon faces a maximum cumulative sentence of 130 years in prison.
Notably, Attorney General Merrick B. Garland emphasized the importance of Kwon’s extradition in the press release, stating:
“We secured this extradition despite Kwon’s alleged attempt to cover his tracks by laundering proceeds of his schemes and trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States.”
Garland also mentioned that financial crimes of this scale would not go unpunished, regardless of their global whereabouts.
The DOJ statement also described Terraform’s collapse as one of the most significant financial losses in the cryptocurrency sector.
