Cryptocurrency magnate Do Kwon has landed in a New York court where he pleaded not guilty to allegations of a multi-billion dollar fraud stemming from the collapse of blockchain platform Terraform Labs. Mr. Kwon had been extradicted from Montenegro where he was arrested attempting to travel to Dubai on falsified travel documents. The collapse of digital currencies TerraUSD and Luna issued by Terraform Labs wiped out $40 billion from the crypto ecosystem.

1. Introduction

On January 2, 2025, the United States Attorney’s Office, Southern District of New York, announced the unsealing of a 79-page superseding indictment charging Do Hyeong Kwon, a South Korean national, with federal fraud charges including securities fraud, wire fraud and conspiracy. (here) The indictment alleges that Mr. Kwon, the co-founder and chief executive officer of Singapore-based Terraform Labs, engaged in multiple schemes to deceive investors in order to fraudulently inflate the value of Terraform’s cryptocurrencies. (here) On December 31, 2024, Tom Gerken reported for the BBC that Mr. Kwon had been extradicted from Montenegro to face the charges stemming from the 2022 collapse of two cryptocurrencies – TerraUSD and Luna – which cost investors $40 billion. (here)

2. Who Is Do Hyeong Kwon?

Mr. Kwon was born and educated in Seoul, South Korea, and received a degree in computer science from Stanford University in Palo Alto, California, in 2015. A former businessman and software engineer, he worked briefly for Apple and Microsoft during his early career. Mr. Kwon co-founded Terraform Labs PTE Ltd. in 2018 with entrepreneur, Daniel Shin. In 2020 Terraform began selling its stablecoin, TerraUSD (UST). The New York prosecutors allege that Mr. Kwon claimed Terraform used blockchain technology “to create a self-contained, decentralized financial world with its own money, payment system, stock market, and savings bank.” On May 9, 2022, Terraform hit the headlines after UST started to break its peg to the U.S. dollar. The price of UST plummeted and Luna crashed resulting in a multi-billion dollar loss across the crypto ecosystem. (here)

3. The Alleged Misrepresentations

The superseding indictment asserts that, between 2018 and 2022, Mr. Kwon orchestrated schemes to defraud purchasers of Terraform cryptocurrencies by making false claims about the stability and efficacy of Terraform’s cryptocurrency stablecoin protocol, its use of blockchain technology and its development of reliable financial technologies. However, core Terraform products did not work as he claimed. Mr. Kwon manipulated Terraform products to create the illusion of a decentralized financial system. The indictment alleges that his conduct inflated the value of Terraform’s cryptocurrencies which he sold to investors in exchange for billions of dollars’ worth of other assets. Here are the condensed misrepresentations specifically asserted in the indictment:

• The Stablecoin Misrepresentations: Mr. Kwon lied about the effectiveness of the system that lay at the heart of Terraform’s cryptocurrency empire, the “Terra Protocol,” which purportedly used a computer algorithm to maintain the value of Terraform’s so-called “stablecoin” pegged to the U.S. dollar, TerraUSD (“UST”), at a value of $1 for one UST. In truth, after the Terra Protocol failed to cause the restoration of UST’s $1 peg in May 2021, Mr. Kwon reached an agreement with executives at a high-frequency trading firm so that the trading firm would purchase large amounts of UST to artificially support UST’s $1 peg.
• The LFG Misrepresentations: Mr. Kwon lied about the governance of Luna Foundation Guard Ltd. which he claimed was managed by an independent governing body and was tasked with deploying billions of dollars’ worth of financial reserves to defend UST’s peg. In addition, Mr. Kwon controlled both the LFG and Terraform. He also misappropriated hundreds of millions of dollars in assets from LFG. He and others acting at his direction sought to launder those misappropriated funds through transactions designed to disguise the source, ownership and control of the funds.
• The Mirror Misrepresentations: Mr. Kwon lied about the success and operation of an investing platform on Terraform’s blockchain called Mirror Protocol that purportedly allowed users to create, buy and sell synthetic versions of stocks listed on U.S. securities exchanges. Mr. Kwon claimed that Mirror operated in a decentralized manner and that he and Terraform played no role in Mirror’s governance. In truth, Mr. Kwon and Terraform secretly maintained control over Mirror and used automated trading bots to manipulate the prices of synthetic assets that Mirror issued. Mr. Kwon also caused Terraform to inflate key user metrics to deceive investors.
• The Chai Misrepresentations: Mr. Kwon falsely claimed that the Terra blockchain was being used to process billions of dollars in financial transactions for the Korean payment-processing application, Chai. In doing so, he claimed that the Terra blockchain has “real world” applications or uses, as distinct from competing cryptocurrency platforms. In truth, Chai processed transactions through traditional financial processing networks, not the Terra blockchain.
• The Genesis Coin Misrepresentations: When the Terra blockchain was first established in 2019, Mr. Kwon arranged for it to have a preexisting supply of approximately one billion Terra stablecoins (the Genesis stablecoins). He provided limited, shifting and knowingly false disclosures to investors about the Genesis stabecoins. Rather than using the Genesis stablecoins solely for the purposes set forth in his disclosures to investors, Mr. Kwon used the Genesis stablecoins for fraudulent purposes such as (a) funding fake Chai blockchain transactions and (b) trading bots to manipulate the prices of synthetic assets issued by Mirror.

At its peak in the spring of 2022, the total market value of all UST and Luna exceeded $50 billion. Much of the growth followed Mr. Kwon’s “brazen deceptions” about Terraform and its technology, including efforts in May 2021 by Mr. Kown and his associates to secretly manipulate the market for UST. By May 2022, the UST market was (a) approximately nine times larger in terms of market capitalization and (b) more than eight times larger in terms of daily trading volume relative to May 2021. In May 2022, UST’s peg began to break down as it had the previous year. While Mr. Kwon was able to cover up the weaknesses of the Terra Protocol in May 2021, he was not able to do so in May 2022. As a result, the value of UST and Luna crashed and investors sustained over $40 billion in losses. After the crash, Mr. Kwon caused the distribution of a misleading “third party audit” report as a cover-up and sought to launder the proceeds through different blockchains, cryptocurrency exchanges and a Swiss bank account.

4. Conclusion

In a piece for CoinDesk titled The Fall of Terra: A Timeline of the Meteoric Rise and Crash of UST and Luna, Krisztian Sandor and Ekin Genç followed Terraform’s journey “from its underdog start as a payments app in South Korea to a $60 billion crypto ecosystem to one of the biggest failures in crypto.” (here) The Terraform network and Mr. Kwon rose to the highest tier of the crypto world “thanks to big-shot investors” but fell apart in days. On May 7, 2022, the price of Terraform’s $18 billion algorithmic stablecoin started to wobble and fell to 35 cents on May 9, 2022. Its companion token, Luna, fell from $80 to a few cents by May 12, 2022. The life savings of “desperate everyday investors” having evaporated, the saga now enters its final phase. Mr. Kwon’s trial is scheduled for January 26, 2026. (here)