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Terra’s Do Kwon Pleads Not Guilty in Major $40B Fraud Case

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  • Kwon faces multiple fraud charges linked to TerraUSD’s collapse.
  • Terraform Labs lost $40B, triggering widespread crypto market chaos.
  • Kwon remains detained as legal proceedings against him unfold.

Terraform Labs co-founder Do Kwon faces serious criminal charges related to the $40 billion collapse of the TerraUSD stablecoin. His not guilty plea marks the beginning of a high-stakes legal battle that could shake the crypto world.

Kwon Pleads Not Guilty

Terraform Labs co-founder Do Kwon pleaded not guilty to fraud charges in a U.S. court on January 2. The charges stem from his involvement in the 2022 collapse of the TerraUSD (UST) stablecoin, which resulted in the loss of approximately $40 billion. The accusations against Kwon include securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering.

The Manhattan federal court hearing, where Kwon entered his plea, marked a major step in the legal proceedings. Kwon, 33, wore an olive green long-sleeved shirt and black sweatpants during his court appearance. His lawyer, Andrew Chesley, informed the court that Kwon would not seek bail at this time and the judge ordered him to remain detained.

Kwon was extradited from Montenegro to the U.S after a lengthy battle between South Korea and the U.S on where he was to be detained. South Korea had initially requested his extradition because of his citizenship while Kwon also hoped to avoid U.S. prosecution. Montenegro’s Constitutional Court dismissed Kwon’s appeal to avoid extradition on December 26, 2023 and he was transferred to U.S. authorities five days later.

Kwon’s TerraUSD and Luna Fraud

The indictment filed in Manhattan by the U.S Attorney’s office on November 17 accused Kwon of defrauding investors in 2021. He falsely claimed that the TerraUSD stablecoin could be stabilized through the “Terra Protocol,” which he said would restore its value. Instead, the indictment says that Kwon arranged for a high-frequency trading company to make massive purchases of the tokens worth millions of dollars which supported and inflated its price.

This fraud contributed to the growth of Luna, another token created by Kwon. In 2022, the Luna token hit an all time high of $50 billion because of Kwon’s deceitful statements about Terraform Labs’ technology. However, when the value of TerraUSD stablecoin started to decline again in May 2022, the trading firm warned that it would be much more challenging to support  it.

Kwon’s actions allegedly contributed to the catastrophic collapse of the Terra ecosystem. The collapse of TerraUSD and Luna disrupted other cryptocurrencies such as Bitcoin. Investors and institutions who had been enticed by the inflated value of Luna suffered massive losses.

Kwon also faces civil consequences in addition to the criminal charges. The U.S. Securities and Exchange Commission (SEC) previously found Kwon and Terraform Labs liable for fraud which led to a $4.47 billion settlement. Terraform Labs filed for bankruptcy after these findings.

Kwon ‘s case adds to the list of other cryptocurrency tycoons who are facing legal action. Others include FTX founder Sam Bankman-Fried who now faces a potential high-profile trial amid speculations fro his pardon by President Trump. His legal battles signal a broader crackdown on fraud and misconduct within the cryptocurrency industry.

Kwon is set to return to court on January 8, 2025 for a follow-up hearing.  As the legal process continues, the crypto community continues to closely monitor the outcome of this case.

LUNC Explodes! Binance Burns 1.7B Tokens, Do Kwon Extradited

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  • LUNC is showing bullish signs, trading within an ascending triangle pattern, suggesting a potential price surge.
  • Binance burns 1.7 billion LUNC, showing its support by reducing the token’s supply.
  • Do Kwon extradited to US to face charges related to the Terra ecosystem collapse.

Terra Classic’s LUNC is poised for a significant price increase after a recent pullback. Additionally, Binance’s recent burn of 1.7 billion tokens has helped to reduce the circulating supply and put upward pressure on the price.

Market analysts highlight that the token is trading within an ascending triangle pattern, a telltale sign of a bullish continuation.

This positive sentiment comes on the heels of Binance incinerating 1.7 billion tokens, executing their first LUNC burn of the new year. The leading crypto exchange have remained committed to this burn mechanism every month since 2022, helping to reduce the overall supply of LUNC tokens, which can lead to price appreciation.

LUNC
Source: Mr. Diamondhandz1

Adding to that, Do Kwon, the co-founder of Terraform Labs, has finally been extradited to the United States to face charges related to the collapse of the Terra ecosystem in May 2022. Kwon’s extradition removes a major cloud of uncertainty surrounding the Terra Classic project for the past 18 months.

LUNC: Do Kwon’s Extradition Ends Uncertainty

The former CEO is facing charges related to the collapse of the Terra ecosystem, which saw the value of Terra Classic and TerraUSD (UST) plummet by over 99% in a matter of days. With Kwon’s extradition, investors can now begin to focus on the future of Terra Classic without the distraction of ongoing legal proceedings.

Overall, the outlook for LUNC appears to be positive. The token’s recent price increase and Binance’s ongoing support to reduce the circulating supply could be a sign of things to come. With Do Kwon’s extradition now out of the way, investors may be more confident in investing in Terra Classic.

Do Kwon: Mystery Transfers After SEC Settlement

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Following Terra’s Do Kwon settlement with the SEC, the Luna Foundation Guard [LFG] address has suddenly had many transfers. On-chain sleuths have detected that between 11:29 and 11:33 UTC+8, LFG has moved roughly 2 million AVAX [about $71.2 million] and 39.500k BNB [about 23.5 million USD] to the unmarked address: 0x13…2e27. Although there is no direct relationship between the LFG’s fund transfer and the legal developments, the event’s timing has raised wild speculation.

Meanwhile, Terraforms Labs, another key player in the Terra ecosystem, has come under intense scrutiny for its bankruptcy proceedings, especially in the case of allegedly attempting to seal reimbursements and retention payments to key employees. This lack of transparency is significant because it reflects ongoing concerns about how TFL has managed its finances and handled its obligations to employees and investors.

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Do Kwon: Mystery Transfers After SEC Settlement 3

The bankruptcy trustee has filed an objection, arguing that the Terra community and the public have the right to know how TFL operated leading up to its bankruptcy filings. This push for transparency aligns with the broader legal and regulatory scrutiny TFL and Do Kwon are facing. Another crucial argument highlighted by one observer was that payments to key employees.

Do Kwon: TFL Under the Radar

Just days before bankruptcy, the firm released $6.5 million in incentive payouts to key employees, raising questions about the priorities and decision-making within TFL. This could be seen as an attempt to secure loyalty or mitigate risks to key personnel amidst the financial collapse, which mirrors the concerns about the sudden fund transfers from the Luna Foundation Guard.

The US Trustee even points out, using CEO Cannon Fleece’s own sworn statements, that TFL has no competitors and their operations use open-sourced software, so there’s no inherent trade secret or commercial competitive advantage to protect in redacting data.

Despite not being directly related, both TFL and LFG are likely to be under the radar of regulators and legal authorities due to their interconnected operations and shared leadership. The legal issues faced by Do Kwon and the settlement with the SEC could extend to scrutiny of the Luna Foundation Guard’s activities, especially if there are concerns about fund management and investor protection.

Terraform Labs Challenges SEC $5.3B Fine for TerraUSD and Luna Collapse

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Terraform Labs, the firm behind the­ algorithmic stablecoin, challenging the substantial fine­ sought by the US Securities and Exchange­ Commission (SEC). After being found liable for fraud in April 2024, Te­rraform Labs is now contesting a $5.3 billion penalty, asserting that most of the­ir operations occurred outside the­ jurisdiction of the United States, according to Bloomberg.

The­ substantial penalty recommendation originate­s from the SEC’s legal action against Terraform Labs and Do Kwon, the­ initiative’s co-creator. The re­gulatory body contends that the 2022 collapse of UST, de­signed to maintain parity with the US dollar, led to a stagge­ring $40 billion investor loss, causing ripples throughout the cryptocurre­ncy market.

Terraform Labs’ Defense Strategy

Terraform Labs’ defense hinges on the location of their token sales. Their lawyers argue that offers and sales of tokens occurred almost entirely outside the US. They further emphasize the lack of evidence presented by the SEC to demonstrate that Terraform Labs or Do Kwon’s limited US activity directly caused the billions in investor losses.

This defence strategy raises a crucial question: can a company avoid legal repercussions in a specific region by conducting most of its business elsewhere? The SEC, unsurprisingly, disagrees. They view the fine as a necessary deterrent against “brazen misconduct” and have requested the court to deliver “an unequivocal message” that such actions will not be tolerated within the US financial landscape.

The $4 billion in “ill-gotten gains” the SEC alleges Terraform Labs and Do Kwon obtained from unregistered sales of LUNA and UST tokens adds another layer of complexity. While Terraform Labs maintains their sales primarily occurred overseas, the SEC likely argues that the impact on US investors necessitates regulatory action.

SEC Pursues Global Crypto Regulation Challenges

The SEC’s actions show the­ difficulties of governing the worldwide­ crypto market, frequently operate­ across borders, resulting in intricate jurisdictional issue­s. Despite most transactions occurring abroad, the SEC’s pursuit of fine­s against Terraform Labs shows regulators’ increase­d determination to hold international crypto firms answe­rable for activities impacting the US.

Do Kwon’s legal counse­l adopted a comparable strategy, conte­nding that his endeavours with Terraform Labs did not have a “foreseeable substantial effect” within the United State­s. This stance shows the­ global nature of the crypto industry and the ongoing discourse­ concerning the establishme­nt of clear legal frameworks across borders.

The judge­’s ruling regarding Terraform Labs’ penalty will garne­r great interest from the cryptocurre­ncy industry. A substantial fine could establish pre­cedents for tougher re­gulations and enforcement on global crypto firms. This may impact future­ innovations and investments within the industry.

Related Reading | Altcoin Potential: Decoding Trends Amidst $2.816 Trillion Projections

Do Kwon’s Extradition Case Takes a Twist as Montenegro Supreme Court Intervenes

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Do Kwon, the e­ntrepreneur be­hind Terraform Labs’ downfall, left a Montene­grin jail on March 23, 2024, according to Bloomberg. However, his free­dom isn’t permanent. Kwon faces e­xtradition demands from South Korea and the U.S., prolonging his le­gal troubles regarding TerraUSD’s collapse­ and algorithmic stablecoin TerraUSD (UST).

The comple­x battle for his custody continues, with both nations vying for jurisdiction over the­ South Korean crypto mogul at the epice­nter of this financial debacle.

“We released Do Kwon from prison as his regular prison term for traveling with fake papers ended, […] Since he is a foreign citizen and his documents were withheld, he was taken for an interview to police directorate for foreigners, and they will deal with him further, said Darko Vukcevic, director of the Montenegrin prison, in a phone interview.

Goran Radic, the lawyer for Kwon, confirmed his client’s release. Monte­negrin state tele­vision disclosed that Kwon’s passport was retained, e­ffectively constraining his ability to depart the­ nation.

Kwon’s rele­ase comes amidst a pivotal moment in his e­xtradition case. On March 22, 2024, Montenegro’s highe­st judicial authority overturned previous rulings favoring Kwon’s e­xtradition to South Korea. This decision poses a significant obstacle­ in the efforts to return the­ Terraform Labs co-founder to his homeland.

South Kore­a often imposes relative­ly lenient penaltie­s for financial misconduct compared to the United State­s. American authorities purportedly aim to prose­cute Kwon for his purported involveme­nt in the $40 billion collapse of UST in May 2022 – an eve­nt that triggered profound upheaval within the­ cryptocurrency landscape.

Do Kwon’s Temporary Reprieve

The Supre­me Court’s intervention corre­sponds with Montenegro’s chief prose­cutor’s recent stance. Citing proce­dural inconsistencies, the prose­cutor contested rulings favoring South Korea’s e­xtradition request on March 21, 2024. The Supre­me Court’s action effective­ly halts the process, nece­ssitating further consideration before­ a conclusive determination. No time­line for resolution has bee­n specified.

Do Kwon’s rele­ase from jail marks a new chapter in this ongoing saga. His te­mporary freedom from confineme­nt is fleeting; his future hangs in pre­carious balance. The extradition tug-of-war be­tween South Korea and the­ United States rages on unabate­d. Montenegro’s Supreme­ Court holds the key, their de­cision determining the the­atre where Kwon face­s potential prosecution for his allege­d role in the TerraUSD calamity.

Related Reading | SEC Punts Grayscale Ethereum ETF Decision to Late May Deadline

Do Kwon: Montenegro’s Prosecutor Challenges Extradition Ruling

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Do Kwon, the former founder of Terraform Labs, may not be extradited to the U.S. after a top prosecutor in Montenegro made a ruling that could affect his extradition. According to sources, the Supreme State Prosecutor’s Office has filed a request for protection before the Supreme Court of Montenegro. The decision was regarding the extradition of a citizen of the Republic of South Korea to KDH [ referring to his full name, Kwon Do-hyeong] through a shortened procedure, a move contested by US prosecutors.

In the specific case, the court, contrary to the law, conducted abbreviated, instead of regular proceedings, and by exceeding the limits of its powers, made a decision on the permission of extradition, which is the exclusive competence of the Minister of Justice.

Under the filing, the Supreme State Prosecutor’s Office is contesting the legality of extradition proceedings, citing violations of Montenegrin law and procedural irregularities. They seek intervention from the Supreme Court to rectify these issues and potentially reverse the Appellate Court’s decision. However, the minister of justice for the Balkan country must ultimately approve any extradition.

Do Kwon
Do Kwon: Montenegro's Prosecutor Challenges Extradition Ruling 5

Do Kwon is at the center of intense debate among investors in South Korea following the Terra-Luna clash. Several affected investors prefer the troubled founder to face the US courts rather than be extradited to South Korea by Montenegro’s high court, as was recently decided.

Investor Demands Fair Trial in Do Kwon’s Extradition

Through a public forum with more than 2,700 members, the Investor Community’s Statement expressed concerns about Do Kwon getting away with mild punishment if he were brought to trial in South Korea. They maintain that the U.S. legal system will check out the offense appropriately, considering its penalties for financial crimes.

According to Bloomberg, the US Department of Justice is still determined to extradite Kwon from Montenegro. The statement from investors highlights the disparity in sentencing between the two countries, with financial crimes in Korea carrying a maximum sentence of 30–40 years, while in the USA, counts of each crime can be stacked up consecutively.

This variation was evident when Sam Bankman-Fried, the former CEO of the now-closed FTX exchange, was recommended to serve a 100-year prison sentence after being found guilty of defrauding investors.

Terra Kingpin Do Kwon Dodges US Extradition

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Do Kwon’s extradition to the US faced a setback after the Montenegrin Court of Appeal ruled to annul the decision of the Podgorica High Court. According to an official statement, the Supreme Court in Podgorica earlier authorized Kwon’s extradition to the US for criminal prosecution for several criminal offenses on February 20. The decision to revoke the Supreme Court’s decision was made after the Court of Appeal found that there were serious violations of criminal procedure regulations in the original decision.

This meant the Terra kingpin won another appeal, further complicating the international legal proceedings against him. Now that the case has been sent back to a lower court, the High Court in Podgorica must decide again whether to send Do Kwon to the US or South Korea, according to a statement released on March 5. The Balkan nation’s justice minister must give final approval for any extradition.

Do Kwon
Terra Kingpin Do Kwon Dodges US Extradition 7

Before this, the U.S. Securities and Exchange Commission agreed to postpone Do Kwon’s civil trial, allowing the indicted co-founder to be extradited and attend the proceedings. The request for a delay until at least March 18, made by Kwon’s lawyer, was deemed justified by the SEC in a recent filing in a Manhattan federal court.

The regulator characterized the requested adjournment as “modest.” Importantly, there won’t be separate trials for Terraform and Kwon, as this would necessitate whistleblowers and retail investors to testify twice, an unnecessary burden.

Do Kwon: LUNA Up By 60%

As reported by TronWeekly, Kwon’s legal representation earlier assured the court that they wouldn’t seek further adjournments even if Kwon couldn’t attend on the new proposed date. In case the court rejects the plea for a further delay, Kwon’s counsel requested that the jury be informed that his absence and inability to testify should not be considered unduly prejudicial to him.

Following the news, the Terra protocol’s staking token, LUNA, is up 62% since the past week. Its algorithmic stablecoin, TerraUSD [UST], is pegged to stable assets like the U.S. dollar. However, holders of both TerraUSD and Luna lost a majority of their assets after the stablecoin plunged far below its $1 peg in the Terra debacle.

Do Kwon’s Terraform Labs Files Bankruptcy: $500M Debt Unveiled

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Do Kwon’s Terraform Labs [TFL], the firm behind one of the most significant crypto crashes in recent history, has filed for bankruptcy protection in the United States. The filing, dated January 21, reveals that the company is facing estimated liabilities and assets ranging between $100 million and $500 million. The move comes as TFL grapples with legal challenges, including ongoing litigation in Singapore and a case with the U.S. Securities and Exchange Commission [SEC].

Chris Amani, the CEO of Terraform Labs, emphasized the resilience of the Terra community and ecosystem in the face of adversity. Amani stated that the bankruptcy filing is a necessary step to address legal challenges while enabling the company to pursue its collective goals.

Do Kwon
Do Kwon's Terraform Labs Files Bankruptcy: $500M Debt Unveiled 9

Terraform Labs plans to execute its business plan during the bankruptcy proceedings, allowing it to navigate the representative litigation in Singapore and the SEC-related legal issues in the United States. The company, co-founded by Do Kwon and Daniel Shin, gained prominence for its Terra blockchain protocol and payment platform for algorithmic stablecoins.

The troubles for TFL began in 2022 when its cryptocurrency token, Luna, and stablecoin, TerraUSD [UST] experienced a catastrophic collapse. UST broke its peg to the U.S. dollar, plummeting to 10 cents, while Luna fell from an all-time high of $119.51 to “virtually zero.” The crash erased nearly $45 billion of market capitalization within a week.

Do Kwon Braces for March Trial

Legal actions followed the collapse, with jurisdictions in Korea, Singapore, and the United States initiating proceedings against Do Kwon and his team. Both the South Korean and American governments have formally requested Kwon’s extradition.

In a recent development, the SEC won a partial victory in its lawsuit against Terraform Labs. U.S. District Court Judge Jed Rakoff ruled that TFL and co-founder Do Hyeong Kwon violated securities laws by offering and selling unregistered digital tokens. The SEC has agreed to postpone Do Kwon’s civil trial, allowing for his extradition and participation in the proceedings.

The delay, requested by Kwon’s lawyer, has been deemed justified by the SEC, with the trial now expected to take place no earlier than March 18. Importantly, there won’t be separate trials for Terraform and Kwon to avoid imposing an unnecessary burden on whistleblowers and retail investors.

Do Kwon: SEC Okays Delay, No Separate Trials

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The U.S. Securities and Exchange Commission has agreed to postpone Do Kwon’s civil trial, allowing the indicted co-founder of Terraform Labs to be extradited and attend the proceedings. The request for a delay until at least March 18, made by Kwon’s lawyer, was deemed justified by the SEC in a recent filing in a Manhattan federal court. The regulator characterized the requested adjournment as “modest.” Importantly, there won’t be separate trials for Terraform and Kwon, as this would necessitate whistleblowers and retail investors to testify twice, an unnecessary burden.

Kwon’s legal representation earlier assured the court that they wouldn’t seek further adjournments even if Kwon couldn’t attend on the new proposed date. In case the court rejects the plea for a further delay, Kwon’s counsel requested that the jury be informed that his absence and inability to testify should not be considered unduly prejudicial to him.

Do Kwon
Source: Inner City Press

The SEC, facing scheduling conflicts, proposed April 15 as a suitable date for the trial. The ultimate decision lies with U.S. District Judge Jed Rakoff, who will determine whether to move the trial date. These developments set the stage for Do Kwon’s potential extradition to the U.S. by mid-March to face charges related to an alleged $40 billion cryptocurrency fraud scheme.

Do Kwon’s Trial Drama Unfolds in Global Jurisdictions

The collapse of TerraUSD, the stablecoin developed by Terraform Labs in May 2022, represented a significant setback for the crypto industry, causing substantial losses for investors. Legal actions were initiated against Do Kwon and his team in multiple jurisdictions, including Korea, Singapore, and the United States, following TerraUSD’s collapse. Both the South Korean and American governments have formally requested Kwon’s extradition.

In the previous month, a U.S. court ruled that Terraform and Do Kwon violated U.S. law by failing to register TerraUSD and Luna. The trial, initially scheduled for late January, is characterized by legal maneuvering, with both parties filing for summary judgment, urging the federal judge to rule in their favor without a trial. Each side contends that the other has inadequately substantiated its case.

Do Kwon: Montenegro Greenlights Extradition

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The key figure behind Terraform Labs, Do Kwon, is set to face extradition either to South Korea or the United States following the approval of the court in Montenegro. The High Court in Podgorica has ruled that the Minister of Justice in Montenegro will be tasked with making the ultimate decision on the priority of extradition in a case that has garnered appeals from multiple states.

The final extradition decision, if approved by the Minister of Justice, will be executed after the completion of the criminal sanction imposed by the Basic Court in Podgorica. Kwon, the previously named defendant, was sentenced to four months of imprisonment for the criminal offense of document forgery under the Criminal Code of Montenegro.

Do Kwon
Do Kwon: Montenegro Greenlights Extradition 12

Earlier, the Montenegro High Court dismissed appeals for the former CEO of Terra Blockchain and his associate, citing document forgery as the grounds for conviction. The collapse of TerraUSD, the stablecoin developed by Terraform Labs, a year ago marked a significant setback for the crypto industry, resulting in substantial losses for investors.

Following TerraUSD’s collapse, legal actions were initiated against Do Kwon and his team in various jurisdictions, including Korea, Singapore, and the United States. Both the South Korean and American governments have formally requested his extradition.

Do Kwon’s Fate Hangs In Balance

Senior South Korean prosecutor Dan Sunghan, leading the investigation, recently shared insights with the media, suggesting that Do Kwon might face extradition to the U.S. after serving his term in South Korea. Sunghan hinted at the potential for a sentence exceeding 40 years if all accusations in South Korea are taken into account. He emphasized that extradition to South Korea would be more conducive to justice and recovering damages for victims, as local authorities possess a more substantial body of evidence compared to their American counterparts.

Sunghan further asserted that Kwon could potentially receive “the longest sentence ever handed down in South Korea,” characterizing the case as the most significant financial fraud or securities fraud incident in the country’s history. The intricate legal proceedings surrounding Kwon underscore the gravity of the charges and the international ramifications of TerraUSD’s downfall.