U.S. Court Finds Terraform Labs and Do Kwon Guilty in Fraud Case

A jury found Terraform Labs and its founder, Do Kwon, guilty of six counts of criminal charges brought by the U.S. Securities and Exchange Commission (SEC). Montenegrin authorities resumed the extradition proceedings against the former CEO of Terraform Labs.

After two weeks of deliberations, a jury in the U.S. District Court for the Southern District of New York ruled that Do Kwon and Terraform Labs were responsible for a massive cryptocurrency fraud.

According to Gurbir Grewal, Director of the SEC’s Division of Enforcement, Terraform and its former executive deceived investors about the stability and security of the algorithmic stablecoin TerraUSD (UST). Moreover, the jury found that Terraform Labs investors were willfully misled about using a blockchain app that processed payments with UST and LUNA.

Specifically, the jury found Kwon and Terraform liable on six counts. The SEC seeks civil financial penalties against the company and its former executive and an injunction prohibiting them from working in the securities industry. The district court ordered that the punitive damages case be heard in the next few weeks after arguments on both sides are presented.

Notably, neither representatives of Terraform Labs nor Do Kwon himself, who is currently in custody in Montenegro, were present at the court hearing. The company’s General Counsel, Louis Pellegrino, said the accusations are baseless and based on information taken out of context. He also said the SEC had no legal authority to bring the case.

It also became known that the Supreme Court of Montenegro canceled the decision of the country’s lower court concerning the extradition of Do Kwon to South Korea. Thus, the court granted the petition of Kwon’s lawyers, ruling that the final decision on the extradition case of the former head of Terraform would be made not by the court but by the competent Minister.

In May 2022, the Terra blockchain network was officially halted due to the instability of the UST stablecoin. Among the reasons for the collapse of Terraform Labs were many conspiracy theories and accusations of manipulation and deception of users, among which there was even a comparison with the bankruptcy of Lehman Brothers. In March 2023, Do Kwon was arrested by Montenegro police while attempting to cross the border with forged documents and has since been in custody, awaiting extradition to South Korea or the U.S.

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