Do Kwon Faces Fraud Charges as U.S. Prosecutors Estimate One Million Victims in Global Crypto Collapse

Jimmy Aki
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Do Kwon, the co-founder of Terraform Labs, faces nine felony fraud charges in connection with the collapse of the Terra ecosystem, which affected about one million individuals globally.

The charges were presented before a New York City court on January 6, 2025, and U.S. prosecutors have outlined plans to notify victims of their rights under the Justice for All Act of 2004, citing the vast scale of Terraform Labs’ failure.

Timeline and Process for Do Kwon’s Terra Luna Victim Notification and Legal Proceedings

In the court filing, acting U.S. Attorney Daniel Gitner highlighted the unprecedented difficulty in identifying and notifying Kwon’s victims, given the global reach of Terraform Labs’ digital assets.

The government estimates that hundreds of thousands, if not more than one million, individuals and entities were impacted by the collapse of the Terra ecosystem, making traditional victim notification methods impractical.

To address this, the government proposed setting up a public website to provide ongoing updates on Kwon’s case, ensuring victims can access information regarding their legal rights.

Under the Justice for All Act, victims of federal crimes are entitled to timely notifications, opportunities to be heard during proceedings, and potential restitution.

While Kwon’s legal team denies the charges, he has pleaded not guilty to the allegations and agreed to remain in detention as his trial unfolds. Kwon was extradited from Montenegro to face justice in the U.S. He arrived in the U.S. on December 31, 2024.

Notably, Terraform Labs, which developed the TerraUSD (UST) stablecoin and the LUNA cryptocurrency, collapsed in May 2022. This event was a major catalyst for a broader market downturn, leading to significant losses in the cryptocurrency industry.

The depegging of the UST token to the dollar triggered the failure of the Terra ecosystem, costing investors billions.

The collapse contributed to the widespread bankruptcy filings of several crypto firms, marking a turning point in the market.

Moreover, Kwon’s alleged involvement in fraud during the collapse has placed him among other high-profile crypto executives facing charges.

He joins former FTX CEO Sam Bankman-Fried and former Celsius CEO Alex Mashinsky in facing U.S. criminal trials and is under similar legal scrutiny.

Do Kwon’s Past Legal Troubles and The Fate of Terra and Terraform Labs Post-Collapse

Kwon’s legal issues are not limited to criminal fraud charges. In April 2024, a U.S. court found him and Terraform Labs liable for fraud in a separate civil case filed by the U.S. Securities and Exchange Commission (SEC).
The court ordered Kwon and Terraform Labs to pay $4.5 billion in disgorgement, civil penalties, and prejudgment interest.

Additionally, both Kwon and Terraform Labs were permanently barred from buying or marketing crypto securities, including the cryptocurrencies within the Terra ecosystem.

Despite Terra’s collapse in 2022, Terraform Labs is still active. The company is undergoing bankruptcy proceedings, and creditors can now submit their claims.

Terra’s blockchain, known as Terra Classic, briefly halted its activities in August 2024 following a $4 million breach caused by a reentrancy attack.

This attack exploited a known vulnerability, stealing assets across several tokens.

However, Terraform Labs has tried to recover, with the network’s activities resuming after the breach.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.