Terraform Labs and Co-Founder Do Kwon Convicted of Fraud in SEC Lawsuit

Terraform Labs and its co-founder, Do Kwon, have been adjudicated guilty of fraud in a civil lawsuit initiated by the United States Securities and Exchange Commission (SEC).

The jury in the U.S. District Court for the Southern District of New York rendered the verdict in federal court following a two-week trial, having heard closing arguments earlier in the day, as stated in an official announcement.

The SEC accused Terraform Labs and its former CEO, Kwon, of misleading investors about the reliability of their crypto asset security and the algorithmic stablecoin known as Terra USD.

Moreover, they were charged with providing false information to investors regarding whether a widely used payment application utilized Terraform’s blockchain for processing and settling transactions.

“We are satisfied with today’s jury verdict holding Terraform Labs and Do Kwon accountable for a significant crypto fraud,” stated SEC Enforcement Director Gurbir Grewal.

“Terraform Labs and Kwon, its former CEO, misled investors about the stability of the crypto asset security and the so-called algorithmic stablecoin Terra USD, and they further misrepresented whether a popular payment application employed Terraform’s blockchain to process and settle payments.”

SEC Attorneys Compare Terraform Labs to “House of Cards”

During the trial, SEC attorneys compared the platform to a “house of cards” and asserted that the company and Kwon had deceived investors.

As per the verdict issued on April 5, the jury found Kwon and Terraform Labs liable for six counts.

Additionally, they concluded that the platform acted recklessly by making false or misleading statements concerning the offer or sale of TerraUSD (UST), Luna, or wLUNA.

Today, after a nine-day trial, a jury in the United States District Court for the Southern District of New York determined Terraform Labs PTE Ltd. & Do Kwon liable for defrauding investors in crypto asset securities.

More: https://t.co/dRtq3ITGMG pic.twitter.com/kwlpKXxv6r

— U.S. Securities and Exchange Commission (@SECGov) April 5, 2024

The downfall of Terraform Labs transpired in May 2022, following the instability of its algorithmic stablecoin, UST, along with other issues regarding the blockchain’s applications.

This collapse had profound effects on the crypto market, contributing to a significant downturn and resulting in bankruptcy filings from notable firms such as FTX, BlockFi, and Celsius.

The SEC initiated its lawsuit against Terraform and Kwon in February 2023, alleging they orchestrated a multi-billion dollar fraud involving crypto asset securities.

In December, Judge Jed Rakoff granted a partial summary judgment in favor of Terraform concerning the unregistered offer and sale of security-based swaps.

Do Kwon’s Extradition Case Returned to Lower Court

Meanwhile, the implications of the verdict on Kwon’s extradition from Montenegro remain unclear.

Recently, Montenegro’s Supreme Court announced it had approved the legality of a previous decision from a lower court that sanctioned Kwon’s extradition to South Korea.

Both the United States and South Korea have submitted competing requests for Kwon’s extradition, with Montenegro now determining which claim to prioritize.

Kwon’s legal representatives are advocating for extradition to South Korea first, where analysts anticipate he may receive a lighter sentence.

Prosecutors argued that the appellate court had breached procedure by dismissing an appeal from Kwon’s legal team on the issue, instead transferring the decision to the Supreme Court.

However, the Supreme Court stated that such decisions do not fall within its jurisdiction.

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