Do Hyeong Kwon, the 33-year-old co-founder and former CEO of Terraform Labs, has been extradited from Montenegro to the United States to face serious fraud charges. Kwon’s involvement in the collapse of cryptocurrencies linked to Terraform caused devastating losses, amounting to over $40 billion. He is accused of misleading investors by making false claims about the stability and effectiveness of the company’s products, manipulating the market, and laundering the proceeds of his illegal activities. His actions have drawn global attention, as many investors, both in the U.S. and around the world, were left with huge financial losses after Terraform’s digital currencies crashed.
How Kwon’s Fraud Schemes Worked
Kwon is alleged to have carried out fraudulent schemes over several years, starting in 2018 and continuing until 2022. The core of his deception was based on Terraform’s cryptocurrencies, especially a digital asset called TerraUSD (UST), which was supposed to maintain a stable value of $1. Kwon promised investors that the UST and other cryptocurrencies, like LUNA, were part of a revolutionary and trustworthy financial system. However, he knew that these claims were false.
At the heart of the scam was the so-called “Terra Protocol,” which was supposed to keep UST stable. But when the system failed in 2021, Kwon allegedly arranged a deal with a high-frequency trading firm to artificially prop up the value of UST. This was just one of many manipulations he used to inflate the value of Terraform’s cryptocurrencies and mislead investors about their reliability. Kwon is accused of falsely advertising the success of several other projects, such as the Mirror Protocol and the Chai payment app, claiming they were decentralized and based on the Terra blockchain, when in fact they were not.
Kwon also made false claims about the management of the Luna Foundation Guard (LFG), an organization he controlled. He falsely told investors that LFG was independent and managed large reserves of funds to protect UST’s value. Instead, he is accused of misappropriating hundreds of millions of dollars from LFG and laundering the money through complicated financial transactions across various platforms.
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The Fallout from the Collapse
In May 2022, Kwon’s scheme unraveled when the value of UST and LUNA collapsed dramatically, wiping out billions of dollars in value. The crash was not just a failure of a single cryptocurrency; it triggered widespread financial chaos. Investors, many of whom had trusted Kwon’s promises, were left with massive losses. At its peak, Terraform’s cryptocurrencies were valued at over $50 billion, but by the time the value collapsed, Kwon’s fraudulent actions had contributed to the loss of more than $40 billion.
After the crash, Kwon allegedly tried to cover up his actions by distributing a misleading audit report and laundering the stolen money. He is said to have used multiple blockchains and cryptocurrency exchanges to hide his tracks and even opened a Swiss bank account to disguise the funds. Kwon’s attempt to flee the country was also thwarted when he was arrested in March 2023 for trying to use a fraudulent passport to escape to a country without an extradition agreement with the U.S.
The Legal Charges and Possible Penalties
Do Kwon is facing a long list of charges related to his alleged fraudulent activities. He has been charged with two counts of commodities fraud, two counts of securities fraud, two counts of wire fraud, and conspiracy to commit fraud. Additionally, Kwon faces charges of money laundering conspiracy. If convicted, he could face up to 130 years in prison, though the final sentence will depend on the court’s decision.
Kwon is accused of using his position to mislead and manipulate investors on a global scale, and now he will have to answer to these charges in an American courtroom. His case has highlighted the risks of the cryptocurrency market and the need for stronger oversight to protect investors from similar scams in the future.
