By Luc Cohen
NEW YORK (Reuters) – Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion in 2022, was scheduled to appear in a U.S. court on Thursday to face felony fraud charges after was extradited from Montenegro this week.
Federal prosecutors in Manhattan charged Kwon, who co-founded Singapore-based Terraform Labs and developed the TerraUSD and Luna currencies, in March 2023 with two counts of securities fraud, wire fraud, commodities fraud and conspiracy.
An updated 79-page indictment filed Thursday charges him with an additional count of conspiracy to commit money laundering.
Kwon, 33, has pleaded not guilty. He agreed last June to pay an $80 million civil penalty and be banned from crypto transactions as part of a $4.55 billion settlement he and Terraform reached with the US Securities and Exchange Commission.
He was scheduled to appear at 12:30 pm (17:30 GMT) before US Magistrate Judge Robert Lehrburger in Manhattan federal court.
In Thursday’s indictment, the Manhattan DA’s office alleges that Kwon misled investors in 2021 regarding TerraUSD, a so-called stablecoin designed to maintain a value of $1.
Kwon allegedly told investors that a computer algorithm known as the “Terra Protocol” restored the coin’s value when it fell below its fixed value in May 2021, when in fact he arranged for a high-frequency trading firm to secretly buy millions of dollars in tokens to artificially raise its price.
Prosecutors said the false claim and others induced retail and institutional investors to buy Terraform products and boost the value of Luna, a more traditional token developed by Kwon that fluctuated in value but was closely tied to TerraUSD, to $50 billion by spring in 2022
“Much of this growth followed Kwon’s brazen deceptions about Terraform and its technology,” the indictment said.
When the value of TerraUSD began to slide again in May 2022, the trading firm warned that maintaining it “wasn’t so easy this time,” according to the indictment.
TerraUSD and Luna crashed that month, dragging down the value of other cryptocurrencies, including bitcoin, and causing more chaos in the crypto market.
Prosecutors did not identify the trading firm, but it fits the description of Jump Trading, which SEC lawyers said in their civil action backed TerraUSD in May 2021.
In a trial over the SEC’s claims, a federal jury in Manhattan last April found Kwon and Terraform liable for defrauding cryptocurrency investors.
Terraform’s attorney said in closing arguments at that trial that Terraform and Kwon were honest about their products and how they worked, even when they failed.
Kwon did not attend that trial because he has been in custody in Montenegro since March 2023. Terraform declared bankruptcy last January.
Kwon is one of several cryptocurrency moguls facing federal charges after the 2022 plunge in prices of the digital tokens fueled the collapse of a number of companies in the space.
Sam Bankman-Fried, who founded the FTX exchange, is appealing his conviction and 25-year sentence last March for stealing $8 billion from customers.
Alex Mashinsky, the founder and former CEO of cryptocurrency lender Celsius Network, pleaded guilty last month to two counts of fraud.
