Do Kwon Extradited to the United States from Montenegro to Face Charges Relating to Fraud Resulting in $40B in Losses

Do Hyeong Kwon, 33, a citizen of the Republic of Korea, was extradited from Montenegro and appeared in court today in Manhattan to face federal fraud charges. A superseding indictment that was unsealed against Kwon alleged that the co-founder and former chief executive officer of Terraform Labs PTE Ltd. (Terraform) engaged in multiple schemes to deceive investors in order to fraudulently inflate the value of Terraform's cryptocurrencies.

Kwon arrived in the United States on Dec. 31, 2024, and made his initial appearance before U.S. Magistrate Judge Robert W. Lehrburger for the Southern District of New York. Kwon's case is assigned to U.S. District Court Judge John P. Cronan, and will appear before Judge Cronan for an initial conference on Jan. 8 at 10:30 a.m ET.

"Do Hyeong Kwon will now be held accountable in an American courtroom for, as alleged in court documents, his elaborate schemes involving Terraform's cryptocurrencies, which resulted in over $40 billion in investor losses," said Attorney General Merrick B. Garland. "We secured this extradition despite Kwon's alleged attempt to cover his tracks by laundering proceeds of his schemes and trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States. This extradition from Montenegro is an example of the Justice Department's international partnerships, which enable the pursuit of criminals wherever they attempt to hide."

"A federal grand jury has indicted Do Kwon for misleading his investors in order to fraudulently inflate the value of Terraform's cryptocurrencies, and laundering the proceeds of his crimes," said Attorney for the United States Daniel M. Gitner for the Southern District of New York. "As we allege, this fraud and the crash of Terraform's cryptocurrencies in May 2022 erased over $40 billion in investor assets, causing devastating losses to countless investors in the United States and around the world. Kwon will now face justice in a federal courtroom in Manhattan."

"Do Kwon, co-founder and former CEO of Terraform, allegedly defrauded investors by falsely advertising the company's blockchain products as decentralized, reliable, and effective, and by engaging in market manipulation, ultimately resulting in more than $40 billion in investor losses," said Assistant Director in Charge James E. Dennehy of the FBI New York Field Office. "For at least four years, Kwon allegedly played puppet master to maintain this crafted illusion and ensnare investors. The FBI will tirelessly work to apprehend any individual who engages in fraudulent financial practices, even those who flee internationally to escape prosecution."

As alleged in the superseding indictment, from at least in or about 2018, up to and including in or about 2022, Kwon orchestrated schemes to defraud purchasers of Terraform cryptocurrencies. Among other things, Kwon made false and misleading claims regarding the stability and efficacy of Terraform's cryptocurrency stablecoin protocol, its use of blockchain technology, and its development of functioning and reliable financial technologies.

As Kwon knew, however, core Terraform products did not work as Kwon had claimed. Rather, Kwon manipulated Terraform products to create the illusion of a functioning, stable, and decentralized financial system. Kwon's conduct inflated the value of Terraform's cryptocurrencies, which Kwon and entities he controlled possessed in large amounts and sold to investors in exchange for billions of dollars' worth of other assets.

Kwon's misrepresentations included the following:

• The Stablecoin Misrepresentations: Kwon made misrepresentations about the effectiveness of the system that lay at the heart of Terraform's cryptocurrency empire, the "Terra Protocol," which purportedly used a computer algorithm to maintain the value of Terraform's so-called "stablecoin" pegged to the U.S. dollar, TerraUSD (UST), at a value of $1 for one UST. But as Kwon knew, after the Terra Protocol failed to cause the restoration of UST's $1 peg in May 2021, Kwon reached an agreement with executives at a high-frequency trading firm (the Trading Firm) so that the Trading Firm would purchase large amounts of UST in order to artificially support UST's $1 peg.
• The LFG Misrepresentations: Kwon made misrepresentations about the governance of the Luna Foundation Guard Ltd. (LFG), which Kwon claimed was managed by an independent governing body and was tasked with deploying billions of dollars' worth of financial reserves to defend UST's peg. But as Kwon knew, he controlled both the LFG and Terraform. In addition, Kwon misappropriated hundreds of millions of dollars in assets from the LFG. Kwon and others acting at his direction sought to launder those misappropriated funds through transactions designed to conceal and disguise the nature, location, source, ownership, and control of the funds.
• The Mirror Misrepresentations: Kwon made misrepresentations about the success and operation of an investing platform on Terraform's blockchain (the Terra blockchain) called Mirror Protocol (Mirror), that purportedly allowed users to create, buy, and sell synthetic versions of stocks listed on U.S. securities exchanges. Kwon claimed that Mirror operated in a decentralized manner and that he and Terraform played no role in Mirror's governance. But as Kwon knew, he and Terraform secretly maintained control over Mirror, and used automated trading bots to manipulate the prices of synthetic assets that Mirror issued. Kwon also caused Terraform to inflate key user metrics to deceive investors.
• The Chai Misrepresentations: Kwon falsely claimed that the Terra blockchain was being used to process billions of dollars in financial transactions for the Korean payment-processing application Chai. In doing so, Kwon claimed that the Terra blockchain had "real world" applications or uses, as distinct from competing cryptocurrency platforms. But as Kwon knew, Chai processed transactions through traditional financial processing networks, not the Terra blockchain.
• The Genesis Coin Misrepresentations: Kwon made misrepresentations about the use of a supply of one billion stablecoins programmed into the Terra blockchain at its creation (the Genesis Stablecoins), which were purportedly held in reserve for Terraform for certain specified uses. But Kwon used at least $145 million worth of Genesis Stablecoins, among other things, to fund fake Chai blockchain transactions and trading bots to manipulate the prices of synthetic assets that Mirror issued.

At its peak in the spring of 2022, the total apparent market value of all UST and another Terraform cryptocurrency, LUNA, exceeded $50 billion. Much of this growth followed Kwon's misrepresentations about Terraform and its technology, including efforts in May 2021 by Kwon and his associates to secretly manipulate the market for UST. By May 2022, the UST market was approximately nine times larger in terms of market capitalization and more than eight times larger in terms of daily trading volume relative to May 2021. In May 2022, UST's peg began to break down as it had a year prior. While Kwon was able to cover up the weaknesses of the Terra Protocol in May 2021, he was not able to do so in May 2022. As a result, the value of UST and LUNA crashed and investors suffered over $40 billion in losses. After the crash of UST and LUNA in May 2022, Kwon caused the distribution of a misleading "third party audit" report to cover up his crimes, and sought to launder the proceeds of his fraud through different blockchains, cryptocurrency exchanges, and a Swiss bank account.

On or about March 23, 2023, Kwon was arrested in Europe for trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States.

Kwon was previously charged in the Southern District of New York in an initial indictment on March 23, 2023.

Kwon is charged with two counts of commodities fraud, for which he faces a maximum penalty of 10 years in prison for each count; two counts of securities fraud, for which he faces a maximum penalty of 20 years in prison for each count; two counts of wire fraud, for which he faces a maximum penalty of 20 years in prison for each count; two counts of conspiracy to commit commodities fraud, securities fraud, and wire fraud, for which he faces a maximum penalty of five years in prison for each count; and one count of money laundering conspiracy, for which he faces a maximum penalty of 20 years in prison. If convicted of all charges, Kwon faces a maximum penalty of 130 years in prison. A federal district court judge will determine any sentence based on the U.S. Sentencing Guidelines and other statutory factors.

The FBI are investigating the case, with assistance from the Justice Department's Office of International Affairs, Interpol, and the Ministry of Justice, Supreme State Prosecutor's Office, Special State Prosecutor's Office, and Police Directorate of Montenegro in the extradition of the defendant. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission also assisted in the case.

Assistant U.S. Attorneys Jared Lenow, Kimberly Ravener, and Andrew Thomas for the Southern District of New York are prosecuting the case.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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