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Kwon was extradited from Montenegro to face US charges

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Prosecutors said Kwon misled investors about TerraUSD

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Several crypto moguls charged after 2022 market slump

By Luc Cohen

NEW YORK, Jan 2 (Reuters) - Do Kwon, the South Korean

cryptocurrency entrepreneur behind two digital currencies that

lost an estimated $40 billion in 2022, pleaded not guilty on

Thursday to U.S. criminal fraud charges after being extradited

from Montenegro this week.

Federal prosecutors in Manhattan on Thursday unsealed a

nine-count indictment charging Kwon, who co-founded

Singapore-based Terraform Labs and developed the TerraUSD and

Luna currencies, with securities fraud, wire fraud, commodities

fraud and money laundering conspiracy.

Kwon, 33, wore an olive green long-sleeved shirt and black

sweatpants as his lawyer Andrew Chesley entered the plea at a

hearing before U.S. Magistrate Judge Robert Lehrburger in

Manhattan federal court.

The judge ordered Kwon detained after Chesley said he would

not seek bail at this time. Kwon took a copy of the 79-page

indictment with him as U.S. marshals led him out of the

courtroom. He is expected back in court on Jan. 8.

Kwon had agreed last June to pay an $80 million civil fine

and be banned from crypto transactions as part of a $4.55

billion settlement that he and Terraform reached with the U.S.

Securities and Exchange Commission.

In Thursday's indictment, the Manhattan U.S. Attorney's

office alleged Kwon misled investors in 2021 about TerraUSD, a

so-called stablecoin designed to maintain a value of $1.

Kwon allegedly told investors a computer algorithm known as

"Terra Protocol" had restored the coin's value when it slipped

below its peg in May 2021, when in fact he arranged for a

high-frequency trading firm to secretly buy millions of dollars

of the token to artificially prop up its price.

Prosecutors said that false claim and others drove retail

and institutional investors to buy Terraform products and boost

the value of Luna, a more traditional token developed by Kwon

that fluctuated in value but was closely linked to TerraUSD, to

$50 billion by the spring of 2022.

"Much of this growth followed Kwon's brazen deceptions about

Terraform and its technology," the indictment said.

When TerraUSD's value began sliding again in May 2022, the

trading firm warned that propping it up "wasn't so simple this

time," according to the indictment.

TerraUSD and Luna crashed that month, dragging down the

value of other cryptocurrencies, including bitcoin, and caused

wider havoc in the crypto market.

Prosecutors did not identify the trading firm. SEC lawyers said

in their civil case that Jump Trading had propped up TerraUSD in

May 2021.

Jump did not immediately respond to requests for comment.

MONTENEGRO DETENTION

In a trial on the SEC claims, a federal jury in Manhattan

found Kwon and Terraform liable last April for defrauding

cryptocurrency investors.

Terraform's lawyer had said in closing arguments that the

company and Kwon had been truthful about their products and how

they worked, even when they failed.

Kwon did not attend that trial because he had been detained in

Montenegro since March 2023 on forgery charges. He was handed

over to U.S. law enforcement officers on Tuesday at an airport

in Podgorica, the capital of Montenegro.

Terraform declared bankruptcy last January.

Kwon is one of several cryptocurrency moguls to face federal

charges after a slump in digital token prices in 2022 prompted

the collapse of a number of companies.

Sam Bankman-Fried, who founded the exchange FTX, is

appealing his conviction and 25-year sentence last March for

stealing $8 billion from customers.

Alex Mashinsky, the founder and former CEO of cryptocurrency

lender Celsius Network, pleaded guilty last month to two counts

of fraud.