The co-founder and former CEO of a cryptocurrency business has been extradited to the US to face fraud charges.
South Korean national Do Hyeong Kwon, 33, appeared in a Manhattan court on Thursday after being extradited from Montenegro on Tuesday.
Between 2018 and 2022, he is accused of defrauding investors in Terraform cryptocurrencies, resulting in losses of over $40bn.
According to the Department of Justice (DoJ), Kwon knowingly made false claims about Terraform’s products, creating the illusion of a fully functioning and stable decentralized finance system.
This in turn inflated the value of Terraform cryptocurrencies, which Kwon allegedly then sold to investors in return for billions of dollars’ worth of other assets.
Read more on crypto-fraud: SEC Charges Man With $42 Million Crypto Fraud Scheme.
Kwon is accused of making several misrepresentations, about:
- The effectiveness of the “Terra Protocol,” which he allegedly said maintained a peg between the firm’s stablecoin (UST) and the US dollar
- The Luna Foundation Guard, which Kwon allegedly said was managed by an independent governing body, and tasked with deploying billions of dollars’ worth of financial reserves to defend UST’s peg
- The success of an investing platform dubbed “Mirror Protocol” which operated on Terraform’s blockchain
- The relationship between Korean payment-processing application Chai and the Terra blockchain. Kwon allegedly claimed Chai used Terra to process billions of dollars’ worth of transactions, when it did not
- One billion stablecoins (dubbed “Genesis”) programmed into the Terra blockchain at its creation. These were meant to be held in reserve, but Kwon allegedly used at least $145m of them to fund fake Chai blockchain transactions
UST’s dollar peg began to break down in May 2021, but Kwon was apparently able to cover up weaknesses in the Terra protocol at the time. However, when the same thing happened a year later he was unable to repeat the trick and the value of UST and another Terraform currency, Luna, crashed, the DoJ said.
Kwon faces multiple charges of commodities fraud, securities fraud, wire fraud and money laundering, which carry a combined maximum jail term of 130 years.