Do Kwon, the former founder of Terra, was extradited to the United States to stand trial, but he pleaded not guilty at the hearing.

Author: jk, Odaily Planet Daily

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

Odaily previously reported that Montenegro Prime Minister Milojko Spajic said on Tuesday that Montenegro had completed the extradition procedures for Terraform Labs co-founder Do Kwon to the United States. Spajic posted on the X platform: "This extradition demonstrates our unwavering commitment to international justice and the rule of law."

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

Background: Terra Collapse, Do Kwon Extradition and Trial Process Preview

The collapse of Terra

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

UST was the number one representative of algorithmic stablecoins that year, maintaining a 1:1 peg to the U.S. dollar through algorithms and market incentive mechanisms, while LUNA is a governance token that supports the stability of UST. However, in early May, as Terra's protocol upgraded and funds fled, UST lost its peg to the U.S. dollar, and the price fell rapidly, triggering market panic. In response to this crisis, Terraform Labs tried to support UST prices through reserves, but failed. At the same time, the dual-currency mechanism of the Terra protocol resulted in a large number of new LUNA being minted, further depressing the price of LUNA, forming a vicious cycle.

Eventually, the price of LUNA plummeted from a high of around $119 to almost zero, and the entire ecosystem collapsed with it. At the same time, Terra’s collapse triggered a chain reaction in the market, affecting other cryptocurrencies such as Bitcoin and causing millions of investors to completely evaporate their funds. Since then, algorithmic stablecoins have almost disappeared from the market, which has directly led to subsequent primary market thunderstorms such as 3AC.

Extradition to the United States or South Korea?

Do Kwon was caught in a tug-of-war in the first half of this year: both the United States and South Korea wanted to try Do Kwon locally. In March, it was revealed that Do Kwon would eventually be extradited to South Korea, but the decision was postponed by the Supreme Court of Montenegro. His extradition to the United States was finally confirmed in December.

Previously, there were rumors in the market that when Do Kwon was arrested by the Montenegrin police, a Trezor hardware cold wallet was found in his rectum, which was said to contain more than 10,000 Bitcoins. Today, those Bitcoins are worth over a billion dollars.

 Source:X

Preview of the trial process

In court, Do Kwon pleaded not guilty to the charges. So what happens next?

Plead not guilty is a formal statement made by a defendant in a criminal case in the United States judicial process in response to court charges, which means that he denies committing the alleged crime. This does not mean that the defendant is directly found innocent, but requires the prosecutor to provide sufficient evidence to prove the accusation. The case will enter the trial stage, and the court will decide whether the defendant is guilty after hearing it.

On January 8, the case will be heard again.

In other words, we will witness a court drama similar to that of SBF at the beginning of this year. From the appearance of witnesses to the final verdict, many inside stories about Terra’s collapse will be revealed. Odaily will continue to follow the reports for you.

He might be sentenced to 130 years, but he smiled

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

Misrepresentation made by Do Kwon:

• Stablecoin Misrepresentation: Kwon falsely promoted the effectiveness of the “Terra Protocol” system, which purportedly used computer algorithms to maintain the value of Terraform’s so-called “stablecoin” TerraUSD (UST) at $1 - 1 UST. But Kwon knew that after the Terra protocol failed to restore UST’s $1 peg in May 2021, he struck a deal with an executive at a high-frequency trading firm for the firm to purchase large amounts of UST to artificially back UST’s $1 peg.

• LFG Misrepresentations: Kwon falsely promoted the governance of Luna Foundation Guard Ltd. (LFG), claiming that the organization was governed by an independent governing body responsible for deploying billions of dollars in financial reserves to defend UST’s pegs. But Kwon actually controlled LFG and Terraform and misappropriated hundreds of millions of dollars in LFG assets.

• Mirror Misrepresentations: Kwon falsely promoted the success of the Mirror protocol on the Terraform blockchain, which purportedly allowed users to create, buy and sell synthetic versions of U.S. stock exchange-listed stocks. But Kwon and Terraform actually control Mirror and manipulate the price of synthetic assets through automated trading bots.

• Chai False Statements: Kwon falsely claimed that the Terraform blockchain was used to process billions of dollars in financial transactions for South Korean payments app Chai, when in fact Chai used a traditional financial processing network.

• Misrepresentation of founding tokens: Kwon used 100 million founding stablecoins originally intended for reserves for false transactions, including manipulating Mirror asset prices.

Daniel M. Gitner, U.S. Attorney for the Southern District of New York, said, “As we allege, this fraud and the collapse of the Terraform cryptocurrency in May 2022 wiped out more than $40 billion in investor assets, creating a significant impact on the United States. Kwon will now face justice in Manhattan federal court."

However, according to Inner City Press, when attending the hearing today, " Do Kwon was chatting with one of his lawyers and smiling - clearly in a good mood."

 Do Kwon enters the court. 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. Terraform's lawsuit with the SEC began in late March, but he was not involved. In April, a jury found Terraform and Kwon violated federal securities laws by misleading investors and being liable for civil fraud.

Kwon faces two counts of commodities fraud (each punishable by up to 10 years), two counts of securities fraud (each punishable by up to 20 years), two counts of wire fraud (each punishable by up to 20 years), two counts of conspiracy conspiracy charges (each carrying a maximum penalty of five years) and one count of a money laundering conspiracy (which carries a maximum penalty of 20 years). If convicted of all charges, Do Kwon could be sentenced to up to 130 years in prison, more than five times that of SBF.