Do Kwon And Terraform Labs Found Liable For $40 Billion Fraud

The United States Southern District of New York jury found Terraform Labs and its co-founder Do Kwon misled investors, acted recklessly, and are liable for civil fraud.

The SEC's Division of Enforcement Director Gurbir Grewal said in a statement today, “Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD.”

Grewal added that, “for all of crypto’s promises, the lack of registration and compliance have very real consequences for real people,” noting that it is “high time” for the digital asset industry to come into compliance.

Today’s verdict comes after the SEC charged Do Kwon for orchestrating a multi-billion fraud that led to a $40 billion loss for investors in Feb. 2023.

LUNA, the token of the Terra blockchain, is down 3.8% to $0.89. The token, which has a market capitalization of $613 million, has slid almost 30% in the past year.

Terra Weighs Next Steps

“We are very disappointed with the verdict, which we do not believe is supported by the evidence,” said a spokesperson for Terraform Labs. “We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps.”

In 2022, Terraform Labs – led by the now-detained Do Kwon – launched its native token, LUNA, and an algorithmic stablecoin, UST, which was backed by LUNA. UST lost its peg after a sharp drop in the price of LUNA, which caused a downward price spiral and run on deposits which wiped out nearly $50 billion of UST’s market cap in a matter of days.

The jury deliberations began last Friday, with final remarks taking place on April 5. The jury voted unanimously against Kwon, who was released from jail in Montenegro, where he was detained on March 23, 2023.

Kwon will remain in Montenegro as he awaits sentencing, whilst still eluding an outstanding warrant for his arrest in his native South Korea.