Do Hyeong Kwon, 33, a citizen of the Republic of Korea, was extradited from Montenegro and appeared in court Thursday in Manhattan to face federal fraud charges.
A superseding indictment that was unsealed against Kwon alleged that the co-founder and former chief executive officer of Terraform Labs PTE Ltd. (Terraform) engaged in multiple schemes to deceive investors to inflate the value of Terraform’s cryptocurrencies fraudulently.
Kwon arrived in the United States on December 31, 2024, and made his initial appearance before U.S. Magistrate Judge Robert W. Lehrburger for the Southern District of New York. Kwon’s case is assigned to U.S. District Court Judge John P Cronan and will appear before Judge Cronan for an initial conference on Jan. 8 at 10:30 a.m. ET.
“Do Hyeong Kwon will now be held accountable in an American courtroom for, as alleged in court documents, his elaborate schemes involving Terraform’s cryptocurrencies, which resulted in over $40 billion in investor losses,” said Attorney General Merrick B. Garland.
A federal grand jury has indicted Do Kwon for misleading his investors to fraudulently inflate the value of Terraform’s cryptocurrencies and laundering the proceeds of his crimes,” according to Attorney for the United States Daniel M. Gitner for the Southern District of New York.
“Do Kwon, co-founder and former CEO of Terraform, allegedly defrauded investors by falsely advertising the company’s blockchain products as decentralized, reliable, and effective, and by engaging in market manipulation, ultimately resulting in more than $40 billion in investor losses,” said Assistant Director in Charge James E. Dennehy of the FBI New York Field Office.
For at least four years, Kwon allegedly played puppet master to maintain this crafted illusion and ensnare investors, Dennehy noted.
As alleged in the superseding indictment, from at least in or about 2018 up to and including in or about 2022, Kwon orchestrated schemes to defraud purchasers of Terraform cryptocurrencies. Among other things, Kwon made false and misleading claims regarding the stability and efficacy of Terraform’s cryptocurrency stablecoin protocol, its use of blockchain technology, and its development of functioning and reliable financial technologies.
As Kwon knew, however, core Terraform products did not work as Kwon had claimed. Rather, Kwon manipulated Terraform products to create the illusion of a functioning, stable, and decentralized financial system. Kwon’s conduct inflated the value of Terraform’s cryptocurrencies, which Kwon and entities he controlled possessed in large amounts and sold to investors in exchange for billions of dollars’ worth of other assets.
At its peak in the spring of 2022, the total apparent market value of all UST and another Terraform cryptocurrency, LUNA, exceeded $50 billion. Much of this growth followed Kwon’s misrepresentations about Terraform and its technology, including efforts in May 2021 by Kwon and his associates to secretly manipulate the market for UST.
By May 2022, the UST market was approximately nine times larger in terms of market capitalization and 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 a year prior. While 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 suffered over $40 billion in losses.
After the crash of UST and LUNA in May 2022, Kwon caused the distribution of a misleading “third party audit” report to cover up his crimes and sought to launder the proceeds of his fraud through different blockchains, cryptocurrency exchanges, and a Swiss bank account.
On or about March 23, 2023, Kwon was arrested in Europe for trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States.
Kwon was previously charged in the Southern District of New York in an initial indictment on March 23, 2023.
Kwon is charged with two counts of commodities fraud, for which he faces a maximum penalty of 10 years in prison for each count; two counts of securities fraud, for which he faces a maximum penalty of 20 years in prison for each count; two counts of wire fraud, for which he faces a maximum penalty of 20 years in prison for each count; two counts of conspiracy to commit commodities fraud, securities fraud, and wire fraud, for which he faces a maximum penalty of five years in prison for each count; and one count of money laundering conspiracy, for which he faces a maximum penalty of 20 years in prison. If convicted of all charges, Kwon faces a maximum penalty of 130 years in prison.
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