The 33-year-old South Korean businessman Do Kwon, who is believed to be responsible for the disastrous collapse of USD $40 billion worth of cryptocurrency in 2022, has pleaded not guilty to multiple federal fraud charges in a Manhattan court. This latest chapter comes on the heels of Kwon’s extradition from Montenegro, where he had been held since March 2023.
The crypto is being referred to as a “wunderkind”. However, it has far deeper legal issues than just globalization. Kwon is allegedly involved in multiple acts of securities fraud, wire fraud, commodities fraud, and money laundering. He was captured in a leak, wearing an olive green shirt and black sweats.
The case viewed through the eyes of federal prosecutors in Manhattan depicts efforts of systematic deception that may have resulted in the single biggest collapse in cryptocurrency history.
The scam, however, started with two tokens, TerraUSD and Luna. TerraUSD is a token designed always to be worth a dollar. Kwon, on the other hand, has supported a complex scheme that manipulates market perceptions as well as deceives investors.
Kwon’s Legal Troubles
According to the lawyers, when the price of TerraUSD fell below or around $1, Kwan told all the investors that a program known as the “Terra Protocol” had regained control over the coin. But the truth is that Kwan had set up a way to recover the value of a lost token without any deception on his part.
According to reports, this deception, along with other false claims, lured both retail investors and large institutional clients to invest money in products offered by Terraform. By early 2022, the market capitalization of Luna, which was pegged to TerraUSD, reached an astonishing $50 billion.
However, the whole house of cards began to collapse in May 2022 when the value of TerraUSD started to go down once more. Despite the past efforts made to support the currency, an involved trading firm warned that maintaining the set price “wasn’t so straightforward this time around.”
The disintegration of TerraUSD together with Luna had dramatic effects on the cryptocurrency space providing additional stress to the ongoing downside in the crypto markets wiping out billions in investors’ funds across the globe. It was so bad that it caused a ripple effect which affected prices of other cryptocurrencies such as bitcoin and the entire crypto market.
Alongside the criminal allegations, Kwon has agreed to a lot of legal trouble. New York specifically Manhattan – Kwon has been found guilty of violating an injunction given by the SEC for a period of 2 weeks wherein he was directed not to sell any crypto assets or deal with any account relating to it.
Do Kwon Faces Detention in US Court
To Kwon’s misery, his trifecta was completed when he synthesized with the SEC to settle the matter for $ 1.57 billion on account of fraud. Additionally, since Kwon still is in custody, during this time he was missing in action as he was required to attend a hearing regarding his and his company Terraform’s fraudulent activities against several investors in Manhattan, that occurred in April 2023, in Montenegro.
The case against Do Kwon is also part of the wider effort led by the US authorities on various forms of fraud in cryptocurrency. He will be among many other crypto titans to be in a court this time unlike him.
Notably, among others, after the collapse of the market back in 2022, Sam Bankman-Fried who was the president of the bankrupt exchange FTX was sentenced to 25 years of time in prison for fraudulently taking $8 billion from clients, and Alex Mashinsky who used to be the CEO of Celsius Network and has also been charged with fraud and given the guilty plea.
Following Thursday’s hearing, U.S. Magistrate Judge Robert Lehrburger ordered Kwon’s detention after his lawyer, Andrew Chesley, declined to seek bail. Kwon, who left the courtroom with a copy of the 79-page indictment in hand, is scheduled to return to court on January 8.
The case highlights the ongoing challenges facing the cryptocurrency industry as it grapples with issues of regulation, transparency, and accountability. As digital assets continue to integrate into the mainstream financial system, the outcome of high-profile cases like Kwon’s may shape the future of cryptocurrency oversight and investor protection measures.
