A Manhattan jury on Friday found a former cryptocurrency CEO, who was located in Singapore, guilty of civil fraud charges, concurring with the US Securities and Exchange Commission that he and his company had deceived investors prior to the collapse of the company’s eponymous cryptocurrency in 2022, which completely destroyed the cryptocurrency markets.
The trial lasted two weeks, with the jury deliberating over closing statements earlier in the day before returning its judgement in federal court. Do Kwon, the founder of Terraform Labs, has been incarcerated in Montenegro since March 2023, therefore he was unable to attend the trial. Using fraudulent Costa Rican travel documents, he was apprehended while travelling to Dubai while evading law enforcement in many nations.
In 2021, the SEC charged that Terraform and Kwon had misled investors regarding the stability of TerraUSD, a stable coin with a $1 value. Additionally, the regulator said that both had made false claims that a well-known Korean mobile payment app utilised Terraform’s blockchain. The SEC is requesting rulings prohibiting Kwon and Terraform from the securities industry as well as civil financial penalties.
During the closing statements, SEC attorney Laura Meehan stated that the platform’s success story was “built on lies.”
“If you take a big swing and miss, but you don’t let others know that you didn’t make the cut. Meehan declared, “That is fraud.”
On Friday, Terraform’s attorney, Louis Pellegrino, said the jury that the SEC’s case was based on remarks that were taken out of context and that, despite their failures, Kwon and Terraform had been honest about their products and how they operated.
Following the decision, the business released the following statement: “We are quite disappointed with the verdict, which we do not believe is supported by the facts. We remain adamant that the SEC lacks the legal standing to pursue this issue, and we are carefully considering our alternatives and future course of action.
Kwon did not show up for the trial, which started on March 25, despite having been arrested in Montenegro in March 2023. Kwon is a citizen of both the United States and South Korea, both of which have requested his extradition on criminal grounds.
The supreme court of Montenegro is weighing the opposing requests for his extradition. Kwon’s legal team has pushed for his extradition to South Korea in the hopes of receiving a reduced sentence. But the government of Montenegro intends to authorise extradition to the United States
Kwon created the more conventional coin called Luna, which had a volatile value but was strongly associated with TerraUSD. She also devised the cryptocurrency TerraUSD.
When the TerraUSD peg to the dollar could not be maintained in May 2022, the SEC estimates that investors lost more than $40 billion on the two tokens combined.
A number of corporations filed for bankruptcy in 2022 as a result of their collapse, which also negatively impacted the value of bitcoin and other cryptocurrencies. It also caused greater mayhem in the crypto market.
In January, Terraform declared bankruptcy on its own.
According to the SEC, Kwon and Terraform conspired behind closed doors to have a third party buy substantial quantities of TerraUSD in order to support the price when the stablecoin deviated from its peg in May 2021. The regulator claims that Kwon misrepresented the recovery by attributing it to the dependability of TerraUSD’s algorithms.
On Friday, Terraform’s legal representative revealed that the company had revealed that TerraUSD’s peg would require defence in May 2021. He claimed that although the Korean payments app had made use of the company’s blockchain, investors were not concerned with the specific technicals of how it had done so.
In recent months, US financial officials have been eager to take action against dubious cryptocurrency moguls. Late last week, Sam Bankman-Fried, the former CEO of FTX, was found guilty of wire fraud and conspiring to launder money. He was given a 25-year sentence in federal prison. His business is currently embroiled in acrimonious bankruptcy proceedings.
In a statement released on Friday, Gurbir Grewal, the director of the SEC’s division of enforcement, stated: “The defendants wiped out tens of billions of market value nearly overnight and caused devastating losses for investors.” Despite all of the hype around cryptocurrency, the implications of not registering and complying are quite real for actual people. We will keep using the resources at our disposal to safeguard the investing public, as demonstrated by the diligent work of our team, but it is imperative that the cryptocurrency markets comply.
