Do Hyeong Kwon, a 33-year-old citizen of the Republic of Korea, has been extradited from Montenegro and made an appearance in court today in Manhattan. He is facing federal fraud charges. The unsealed superseding indictment against Kwon accuses him, as the co-founder and former CEO of Terraform Labs PTE Ltd. (Terraform), of participating in various fraudulent schemes to deceive investors and artificially boost the value of Terraform’s cryptocurrencies.
Kwon arrived in the United States on December 31, 2024, and had his first appearance before U.S. Magistrate Judge Robert W. Lehrburger for the Southern District of New York. The case of Kwon has been assigned to U.S. District Court Judge John P. Cronan, and Kwon will have an initial conference before Judge Cronan on January 8 at 10:30 a.m ET.
Attorney General Merrick B. Garland stated that Do Hyeong Kwon will now face legal consequences in an American courtroom. According to court documents, Kwon is accused of orchestrating complex schemes involving Terraform’s cryptocurrencies, resulting in losses exceeding $40 billion for investors. Despite Kwon’s alleged attempts to conceal his actions by laundering the proceeds of his schemes and using a fraudulent passport to travel to a non-extradition country, the extradition from Montenegro was successfully carried out. This case serves as an example of the Justice Department’s commitment to international collaborations, ensuring that criminals are pursued and held accountable regardless of their attempts to evade justice.
Attorney for the United States Daniel M. Gitner for the Southern District of New York announced that Do Kwon has been indicted by a federal grand jury. The indictment alleges that Kwon misled his investors and engaged in fraudulent activities to artificially inflate the value of Terraform’s cryptocurrencies. Additionally, Kwon is accused of laundering the proceeds from his crimes. The crash of Terraform’s cryptocurrencies in May 2022 resulted in the loss of over $40 billion in investor assets, causing significant harm to numerous investors globally. Kwon will now have to face justice in a federal courtroom located in Manhattan.
“Do Kwon, the co-founder and former CEO of Terraform, is accused of defrauding investors through false advertising of the company’s blockchain products. According to Assistant Director in Charge James E. Dennehy of the FBI New York Field Office, Kwon allegedly presented these products as decentralized, reliable, and effective, while also engaging in market manipulation. As a result, investors suffered losses exceeding $40 billion. It is believed that Kwon masterminded this deceptive scheme for a period of at least four years, manipulating the market to deceive and trap unsuspecting investors. The FBI is committed to pursuing individuals involved in fraudulent financial practices, even those who attempt to evade prosecution by fleeing internationally.”
According to the superseding indictment, Kwon is accused of orchestrating schemes to deceive buyers of Terraform cryptocurrencies from 2018 to 2022. During this time, Kwon made deceptive statements about the stability and effectiveness of Terraform’s cryptocurrency stablecoin protocol, its utilization of blockchain technology, and its development of trustworthy and operational financial technologies.
Kwon, however, manipulated Terraform products instead of making them work as he had previously claimed. This manipulation resulted in the creation of a false perception of a functional, stable, and decentralized financial system. As a result of Kwon’s actions, the value of Terraform’s cryptocurrencies was inflated. Kwon and the entities under his control took advantage of this inflated value and sold large amounts of cryptocurrencies to investors, receiving billions of dollars’ worth of other assets in return.
Kwon made several misrepresentations, which are as follows:
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- The Stablecoin Misrepresentations: Kwon made misrepresentations about the effectiveness of the system that lay at the heart of Terraform’s cryptocurrency empire, the “Terra Protocol,” which purportedly used a computer algorithm to maintain the value of Terraform’s so-called “stablecoin” pegged to the U.S. dollar, TerraUSD (UST), at a value of $1 for one UST. But as Kwon knew, after the Terra Protocol failed to cause the restoration of UST’s $1 peg in May 2021, Kwon reached an agreement with executives at a high-frequency trading firm (the Trading Firm) so that the Trading Firm would purchase large amounts of UST in order to artificially support UST’s $1 peg.
- The LFG Misrepresentations: Kwon made misrepresentations about the governance of the Luna Foundation Guard Ltd. (LFG), which Kwon claimed was managed by an independent governing body and was tasked with deploying billions of dollars’ worth of financial reserves to defend UST’s peg. But as Kwon knew, he controlled both the LFG and Terraform. In addition, Kwon misappropriated hundreds of millions of dollars in assets from the LFG. Kwon and others acting at his direction sought to launder those misappropriated funds through transactions designed to conceal and disguise the nature, location, source, ownership, and control of the funds.
- The Mirror Misrepresentations: Kwon made misrepresentations about the success and operation of an investing platform on Terraform’s blockchain (the Terra blockchain) called Mirror Protocol (Mirror), that purportedly allowed users to create, buy, and sell synthetic versions of stocks listed on U.S. securities exchanges. Kwon claimed that Mirror operated in a decentralized manner and that he and Terraform played no role in Mirror’s governance. But as Kwon knew, he and Terraform secretly maintained control over Mirror, and used automated trading bots to manipulate the prices of synthetic assets that Mirror issued. Kwon also caused Terraform to inflate key user metrics to deceive investors.
- The Chai Misrepresentations: Kwon falsely claimed that the Terra blockchain was being used to process billions of dollars in financial transactions for the Korean payment-processing application Chai. In doing so, Kwon claimed that the Terra blockchain had “real world” applications or uses, as distinct from competing cryptocurrency platforms. But as Kwon knew, Chai processed transactions through traditional financial processing networks, not the Terra blockchain.
- The Genesis Coin Misrepresentations: Kwon made misrepresentations about the use of a supply of one billion stablecoins programmed into the Terra blockchain at its creation (the Genesis Stablecoins), which were purportedly held in reserve for Terraform for certain specified uses. But Kwon used at least $145 million worth of Genesis Stablecoins, among other things, to fund fake Chai blockchain transactions and trading bots to manipulate the prices of synthetic assets that Mirror issued.
In the spring of 2022, the total apparent market value of UST and another Terraform cryptocurrency, LUNA, reached over $50 billion. This substantial growth was largely driven by Kwon’s deceptive tactics regarding Terraform and its technology. In May 2021, Kwon and his associates engaged in covert market manipulation to bolster the UST market. By May 2022, the UST market had expanded by nine times in terms of market capitalization and over eight times in terms of daily trading volume compared to May 2021. However, in May 2022, UST’s peg began to deteriorate, similar to the previous year. While Kwon had managed to conceal the vulnerabilities of the Terra Protocol in May 2021, he was unsuccessful in doing so in May 2022. Consequently, the value of UST and LUNA plummeted, resulting in investors suffering losses exceeding $40 billion. In an attempt to conceal his illicit activities, Kwon disseminated a misleading “third-party audit” report following the crash of UST and LUNA in May 2022. Additionally, he sought to launder the proceeds of his fraudulent activities through various blockchains, cryptocurrency exchanges, and a Swiss bank account.
On March 23, 2023, Kwon was apprehended in Europe for attempting to use a fake passport in order to travel to a country that lacked an extradition treaty with the United States.
Kwon faced charges in the Southern District of New York when he was initially indicted on March 23, 2023.
Kwon is facing multiple charges, including two counts of commodities fraud, two counts of securities fraud, two counts of wire fraud, two counts of conspiracy to commit commodities fraud, securities fraud, and wire fraud, and one count of money laundering conspiracy. If found guilty on all charges, Kwon could be sentenced to a maximum of 130 years in prison. The actual sentence will be determined by a federal district court judge, taking into account the U.S. Sentencing Guidelines and other factors outlined by the law.
The FBI is currently leading the investigation into the case, with support from Trial Attorneys Jason Cunningham and Goran Krnaich from the Justice Department’s Office of International Affairs. They are collaborating with Interpol, the Ministry of Justice, Supreme State Prosecutor’s Office, Special State Prosecutor’s Office, and the Police Directorate of Montenegro to extradite the defendant. Additionally, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have provided valuable assistance in the case.
The case is being prosecuted by Assistant U.S. Attorneys Jared Lenow, Kimberly Ravener, and Andrew Thomas from the Southern District of New York.