Do Kwon, the South Korean cryptocurrency entrepreneur who developed two digital currencies that lost an estimated $40 billion in 2022, pleaded not guilty to U.S. criminal fraud charges on Thursday. Extradited from Montenegro this week.
Federal prosecutors in Manhattan charged Kwon, co-founder of Singapore-based Terraform Labs and creator of the TerraUSD and Luna currencies, with two counts each of securities fraud, wire fraud, commodity fraud and conspiracy in March 2023. Each was indicted.
The latest 79-page indictment filed Thursday added a charge of money laundering conspiracy.
Mr. Kwon, 33, made his argument before U.S. Magistrate Judge Robert Rehberger in Manhattan federal court.
He agreed last June. pay an $80 million civil penalty As part of a $4.55 billion settlement that he and Terraform reached with the Securities and Exchange Commission, he will be prohibited from trading in cryptocurrencies.
In Thursday's indictment, the Manhattan U.S. Attorney's Office alleged that Kwon misled investors about TerraUSD, a so-called stablecoin designed to maintain the value of $1 in 2021.
Kwon allegedly told investors that a computer algorithm known as the “Terra Protocol” restored the coin's value when the coin fell below the peg in May 2021, when in reality Kwon He arranged for a high-frequency trading firm to secretly buy millions of dollars worth of tokens. Artificially inflating prices.
Prosecutors say the false claims and other false claims encouraged retail and institutional investors to buy Terraform products, and that Luna, a more traditional token developed by Kwon that fluctuates in value but is closely tied to TerraUSD. It said it would push its value to $50 billion by spring 2022.
“Much of this growth was due to Mr. Kwon's brazen deceptions regarding Terraform and its technology,” the indictment states.
According to the indictment, when TerraUSD's value began to decline again in May 2022, the trading company warned that supporting TerraUSD's value “wasn't as easy this time.”
In the same month, TerraUSD and Luna crashed, causing the value of other cryptocurrencies, including Bitcoin, to fall, causing further havoc in the crypto market.
Prosecutors did not identify the trading company, but it matches the description of Jump Trading Inc., which SEC lawyers said supported TerraUSD in a May 2021 civil suit.
Jump Inc. did not respond to a request for comment.
In a trial on the SEC's claims, a federal jury in Manhattan found Kwon and Terraform liable for defrauding crypto investors last April.
Terraform's lawyers said in closing arguments in that case that even when they failed, Terraform and Kwon had been honest about their product and how it worked.
Kwon did not attend the trial because he had been detained in Montenegro since March 2023.
Terraform declared bankruptcy last January.
Kwon is one of several crypto tycoons facing federal charges after the 2022 slump in digital token prices caused many companies to go bankrupt.
Sam Bankman Fried, who founded the exchange FTX, was convicted last March of stealing $8 billion from customers and is appealing his 25-year prison sentence.
Alex Mashinsky, the founder and former CEO of crypto financial company Celsius Network, pleaded guilty last month to two counts of fraud.
