Terraform Labs and Do Kwon, its co-founder, were found guilty of fraud in a civil case brought by the SEC in the U.S. District Court for the Southern District of New York. The SEC alleged that they deceived investors about the stability of their crypto asset security and algorithmic stablecoin, Terra USD, as well as misled investors about whether Terraform’s blockchain was used for processing payments. The jury found Terraform Labs and Kwon liable for six charges and determined that they had acted recklessly in making false or misleading statements. The collapse of Terraform Labs in May 2022 had significant implications for the crypto market, leading to bankruptcy filings from prominent firms such as FTX, BlockFi, and Celsius.
The SEC filed its lawsuit against Terraform Labs and Kwon in February 2023, accusing them of orchestrating a multi-billion dollar crypto asset securities fraud. In December, Judge Jed Rakoff granted a partial summary judgment in favor of Terraform regarding the unregistered offer and sale of security-based swaps. The impact of the guilty verdict on Kwon’s extradition from Montenegro remains uncertain, as both the United States and South Korea have filed competing claims for his extradition. Montenegro’s Supreme Court has approved the protection of legality of a prior decision from a lower court for Kwon’s extradition to South Korea, but Kwon’s legal team is pushing for extradition to South Korea first, where he may receive a lighter sentence.
Throughout the trial, SEC attorneys likened Terraform Labs to a “house of cards” and alleged that the company and Kwon had lied to investors. The collapse of Terraform Labs in May 2022, following the instability of its algorithmic stablecoin UST, played a role in a major downturn in the crypto market and led to bankruptcy filings from several prominent firms. The SEC’s lawsuit accused Terraform and Kwon of fraud related to their crypto asset securities, and the jury found them liable for multiple charges. The verdict has raised uncertainties about Kwon’s extradition from Montenegro, with competing claims from the United States and South Korea.
Kwon’s legal team is pushing for extradition to South Korea first, where analysts expect he may receive a lighter sentence. The Supreme Court of Montenegro has approved the protection of legality of a prior decision from a lower court that approved Kwon’s extradition to South Korea. Prosecutors claimed that the appellate court violated procedure by rejecting an appeal from Kwon’s legal team and putting the decision in the hands of the Supreme Court. However, the Supreme Court stated that decisions of this nature are not within its responsibility. The verdict in the SEC case against Terraform Labs and Kwon has resulted in uncertainty regarding Kwon’s extradition and legal proceedings in Montenegro.
