The US court declared that Do Kwon deceived investors about the LUNA-UST model

Terraform Labs and co-founder Do Kwon are accused of fraud related to the LUNA cryptocurrency project and the UST stablecoin.

According to the judgment issued on April 5 (US time), the Southern District Court of New York ruled to recognize the fraud charges imposed by the US Securities Commission (SEC) on Terraform Labs and co-founder Do Kwon, the man behind the collapse of the $60 billion LUNA-UST algorithmic stablecoin model.

The civil trial has been taking place since the end of March 2024, despite the absence of Do Kwon because he is still detained in Montenegro. The court in early 2023 also recognized the SEC's argument that LUNA and UST are securities.

The jury at trial found that Do Kwon and Terraform Labs defrauded investors by making false claims about the stability of the LUNA-UST model, saying that the algorithm behind the project guaranteed always retains its value compared to the US dollar. But in reality, the project had to rely on the manipulation of large investment organizations to maintain a stable value.

The SEC prosecutor at trial asserted that the Jump Trading fund made a secret agreement with Terraform Labs to rescue UST during the depeg event in May 2021, buying hundreds of millions of USD in stablecoins from the market to help it return. 1 USD value mark. Do Kwon and Terraform Labs used this event to claim that LUNA-UST's algorithm was effective and demonstrated that the model was self-healing. Furthermore, the company also lied to investors about the cooperation agreement with Chai to use UST in payments.

However, Terraform Labs' lawyer sought to deny Jump's role in the case, claiming that the relationship between the two was only for market maker purposes. The defendant said all "savvy" LUNA-UST investors could see that the project's algorithm was not a "magic machine" or "autonomous program", but just an operation. Token issuance and burning by transaction participants.

After the verdict, a Terraform Labs representative responded to CoinDesk:

“We are disappointed with the verdict, not believing there is enough evidence to support it. We continue to maintain our view that the SEC does not have the authority to handle the case and will consider our options and next steps.”

Mr. Do Kwon is still detained in Montenegro, the European country that arrested the founder of Terraform Labs in March 2023 for using a fake passport. After being in prison, Do Kwon continued to be entangled in a legal battle for extradition rights between the US and South Korea for many months, two countries that both had criminal charges against this character.

Initially, the Supreme Court of Montenegro decided to extradite Do Kwon to the US, but after the defendant's successful appeal, it changed its mind to Korea. However, prosecutors intervened and argued that only the Montenegrin Ministry of Justice had the right to make a decision to extradite Do Kwon, causing the trial process to become deadlocked.

Previously, Do Kwon, founder of the Luna cryptocurrency project, was sentenced to four months in prison on charges of using fake documents.

The sentence was issued by the Montenegrin court on June 19 against Do Kwon for using a fake passport to travel. Also fined was Han Chang-joon, Chief Financial Officer of Terraform Labs, for similar behavior. The previous detention period will count towards the prison term and both can also appeal.

Kwon and his partner were arrested in Montenegro in March, after both were on their way to board a private plane to Dubai. The arrest was made by Montenegrin authorities following an international arrest warrant, issued after the collapse of two digital currencies, Luna and UST, causing this market to decrease by 40 billion USD, causing many players to lose everything.

According to Montenegro police, when arrested, Do Kwon was carrying many fake documents, including Belgian and Costa Rican passports. All have been confiscated. In the first trial on June 16, both pleaded not guilty. Kwon changed his statement and confirmed that he had received these documents in Singapore through a party that specialized in selling citizenship of many different countries and that they believed the passports were genuine.

"I have no reason to doubt these documents because they are not rare. Many countries such as Grenada, Dubai, Portugal and even Montenegro have them with an investment of 250,000 euros. We have registered households This passport was through an agency introduced by a friend," Kwon said.

However, the prosecutor in Montenegro said that there was no basis in changing the testimony in court, and that seizing them from hand luggage showed that both were ready to use them.

Bloomberg quoted Do Kwon's lawyer Goran Rodic as saying he "will consult with his client about the possibility of appeal".

Do Kwon was also accused of fraud by South Korea and the US. These two countries are trying to extradite him back from Montenegro. However, law enforcement agencies here said they would consider handing over Kwon after completing local proceedings.

Do Kwon is the founder of Terraform Labs, the project behind two cryptocurrencies, Luna and UST. In May 2022, the price of these two tokens dropped to almost all of their value, leaving many players empty-handed. This is considered one of the biggest disasters in the global cryptocurrency sector and negatively affected the entire market. After the collapse, Kwon was red-wanted by the international police Interpol. CEO 9x is said to have been in Korea, then went to Singapore before disappearing. On Twitter, he declared that he was not on the run, affirming that he "did not steal money and never withdrew money secretly".