TerraForm’s Do Kwon charged by US SEC over $40bn fraud


The US Securities and Exchange Commission (SEC) has charged former TerraForm Labs Chief Do Kwon over the May 2022 collapse of the cryptocurrency company.

Do Kwon has been charged with defrauding users of TerraForm’s TerraLuna and TerraUSD tokens after both collapsed dramatically overnight, with its valuations declining almost 99% in the space of a day. 

The SEC stated that Do Kwon was liable behind one of the crypto markets most notorious collapses which resulted in investors losing in total almost $40bn after he was found to have defrauded customers. 

After a nine day trial, a jury in the US District Court of the Southern District of New York found TerraForm Labs and Do Kwon defrauded customers and that Kwon “unlawfully offered and sold crypto assets securities in violation of the registration provisions of the Securities Act of 1933”. 

SEC Division of Enforcement Director Gurbir S. Grewal stated: “We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud. 

“Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.”

Laura Meehan, Attorney for the SEC, revealed to the jury that an institutional investor, Jump Trading, had attempted to secure a deal with Do Kwon in May 2022 to finance the resurgence of the TerraUSD stablecoin after its initial collapse. 

Jump Trading and Do Kwon had kept this deal a secret from the rest of TerraForm and its investors in an attempt to restore TerraUSD’s value back to 1:1 with its pegged fiat currency, the US Dollar. 

TerraForm and Do Kwon’s lawyers noted that its relationship with Jump Trading was nothing more than a regular aspect of the pair’s relationship. 

Lawyers also told the jury that the algorithm that was pegged to the TerraUSD token was not a “magical machine” and that its decline was attributed to minting and burning performed by market participants. 

A spokesperson for TerraForm Labs told CoinDesk: “We are very disappointed with the verdict, which we do not believe is supported by the evidence. We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps.”

Do Kwon is still yet to leave Montenegro after being found in the country fleeing South Korea on the run from authorities after an arrest warrant was issued. 

The US government has been lobbying for Do Kwon to be extradited to the US but are facing opposition from South Korea, who are also seeking to extradite the former TerraForm CEO on charges placed against him.