Do Kwon Pleads Not Guilty in U.S. Court, Faces Up to 130 Years in Prison

Original Title: "Do Kwon Extradited to the U.S. for Trial, Smiling but Not Pleading Guilty"

Original Author: jk, Odaily Planet Daily

On January 2nd local time in the U.S., Do Kwon, the former founder of Terra and co-founder of Terraform Labs, officially appeared in the public eye of the U.S. court. At a hearing in the Manhattan Federal Court, Do Kwon pleaded not guilty, and the case will proceed to trial.

Earlier, Odaily reported that Milojko Spajic, the Prime Minister of Montenegro, stated on Tuesday, "Montenegro has completed the extradition process of Do Kwon, co-founder of Terraform Labs, to the U.S." Spajic posted on Platform X, saying, "This extradition demonstrates our unwavering commitment to international justice and the rule of law."

Do Kwon faces charges in New York and Seoul related to the collapse of the $40 billion TerraUSD stablecoin in 2022. Last year, he was arrested in Montenegro for traveling with a forged passport. In April of this year, following a civil trial on charges by the U.S. Securities and Exchange Commission (SEC), Terraform and its founder Do Kwon were found guilty of fraud. Terraform has agreed to pay $4.5 billion to settle with the SEC.

Background: Terra Collapse, Do Kwon's Extradition, and Trial Outlook

Terra's Collapse

In May 2022, the Terra ecosystem experienced an unprecedented collapse in the history of cryptocurrency, with the value of its two core cryptocurrencies, TerraUSD (UST) and LUNA, nearly plummeting to zero, resulting in approximately a $40 billion loss.

UST was the flagship algorithmic stablecoin of that year, maintaining a 1:1 peg to the U.S. dollar through an algorithm and market incentive mechanism, while LUNA was the governance token supporting UST stability. However, in early May, as Terra's protocol upgrade and capital outflow occurred, UST lost its peg to the dollar, leading to a rapid price decline and triggering market panic. To address this crisis, Terraform Labs attempted to support the UST price through a reserve fund but was unsuccessful. Meanwhile, the dual-token mechanism of the Terra protocol led to the minting of a large amount of new LUNA, further depressing LUNA's price, creating a vicious cycle.

Ultimately, LUNA's price plummeted from a high of around $119 to almost zero, causing the entire ecosystem to collapse. Simultaneously, Terra's collapse triggered a market chain reaction, impacting other cryptocurrencies such as Bitcoin and leading to the complete loss of funds for millions of investors. Subsequently, algorithmic stablecoins almost disappeared from the market, directly causing subsequent primary market rug pulls like 3AC.

Extradition to the U.S. or South Korea?

Do Kwon was caught in a tug-of-war earlier this year: both the U.S. and South Korea wanted to try Do Kwon domestically. In March, it was rumored that Do Kwon would be extradited to South Korea, but the decision was postponed by the Supreme Court of Montenegro, eventually confirming his extradition to the U.S. in December.

Previously, there were rumors in the market that when Do Kwon was arrested by Montenegrin police, a Trezor hardware cold wallet containing over 10,000 bitcoins was found in his rectum. Today, these bitcoins are worth over a billion dollars.

Source: X

Preview of the Trial Process

In court, Do Kwon pleaded not guilty to the charges against him. What will happen next?

Not guilty plea is a formal statement made by a defendant in a criminal case in the U.S. judicial system, indicating a denial of committing the crimes alleged. This does not mean the defendant is automatically declared innocent but requests the prosecution to provide sufficient evidence to prove the charges. The case will proceed to trial, where the court will determine the defendant's guilt.

On January 8, the case will be back in court.

Therefore, we will witness a courtroom drama similar to SBF's at the beginning of this year, from witness testimonies to the final judgment, revealing many insider details of the Terra collapse. Odaily will continue to track and report on this.

He Could Face 130 Years in Prison, but He Smiles

Do Kwon faces multiple charges. According to a press release from the U.S. Department of Justice's Public Affairs Office, the main charges against Do Kwon are as follows:

False Statements Made by Do Kwon:

· Stablecoin False Statement: Kwon falsely promoted the effectiveness of the "Terra protocol" system, which purportedly uses a computer algorithm to maintain the value of Terraform's so-called "stablecoin" TerraUSD (UST) at 1 US dollar-1 UST. However, Kwon knew that in May 2021, the Terra protocol failed to restore UST's 1 US dollar peg, and he reached an agreement with an executive of a high-frequency trading firm to have the firm purchase a large amount of UST to artificially support UST's 1 US dollar peg.

· LFG False Statement: Kwon falsely promoted the governance of Luna Foundation Guard Ltd. (LFG), claiming that the organization was managed by an independent governing body responsible for deploying billions of dollars in financial reserves to defend UST's peg. However, Kwon actually controlled LFG and Terraform, and misappropriated hundreds of millions of dollars of LFG assets.

· Mirror False Statement: Kwon falsely promoted the success of the Mirror protocol on the Terraform blockchain, which purportedly allows users to create, buy, and sell synthetic versions of stocks listed on US stock exchanges. However, Kwon and Terraform actually controlled Mirror and manipulated the prices of synthetic assets through automated trading bots.

· Chai False Statement: Kwon falsely claimed that the Terraform blockchain was used to process billions of dollars in financial transactions for the South Korean payment app Chai, when in reality, Chai used a traditional financial processing network.

· Founding Token False Statement: Kwon used the initially allocated 100 million founding stablecoins intended for reserves in fraudulent transactions, including manipulating Mirror asset prices.

Assistant United States Attorney for the Southern District of New York Daniel M. Gitner stated, "As alleged, this fraudulent conduct, along with the collapse of the Terraform cryptocurrency in May 2022, wiped out over $40 billion in investor assets, causing devastating losses to countless investors in the United States and globally. Kwon will now face justice in the Manhattan federal court."

However, according to Inner City Press, at today's hearing, 「Do Kwon was seen chatting with one of his lawyers, smiling broadly — evidently in good spirits.」

Do Kwon entering the courtroom. Source: Inner City Press

According to The Block, Kwon also faces civil charges filed by the U.S. Securities and Exchange Commission (SEC) in February 2023. The lawsuit between Terraform and the SEC started at the end of March, but he did not participate. In April, the jury ruled that Terraform and Kwon misled investors, were liable for civil fraud, and violated federal securities laws.

Kwon faces two counts of commodities fraud (each carrying a maximum sentence of 10 years), two counts of securities fraud (each carrying a maximum sentence of 20 years), two counts of wire fraud (each carrying a maximum sentence of 20 years), two counts of conspiracy (each carrying a maximum sentence of 5 years), and one count of money laundering conspiracy (carrying a maximum sentence of 20 years). If convicted on all charges, Do Kwon could face up to 130 years in prison, more than five times that of SBF.

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