'Terrasatae' Kwon Do-hyung Loses US Civil Trial... "Deceived Investors"

In the civil lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Kwon Do-hyung, CEO of Terraform Labs and a key figure in the collapse of virtual currencies ‘Terra·Luna,’ a jury verdict found that Kwon must be held responsible for deceiving investors.

(Podgorica [Montenegro] = Yonhap News) Kwon Do-hyung, CEO of Terraform Labs, is heading to the Podgorica District Court in Podgorica, the capital of Montenegro, on the 16th (local time) to attend a trial related to a forged passport case.

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According to major foreign media on the 5th (local time), the jury at the U.S. District Court for the Southern District of New York acknowledged the plaintiffs’ claim that Kwon and Terraform Labs, which he co-founded, misled investors by falsely assuring that the cryptocurrency Terra was safe, causing them massive losses.

The plaintiff, the U.S. Securities and Exchange Commission (SEC), filed the civil lawsuit in November 2021, alleging that Kwon and Terraform Labs deceived investors about Terra’s stability, resulting in substantial investment losses. This trial is a civil case separate from the criminal trial filed against Kwon. Civil trials can proceed even if the defendant does not appear in person.

Judge Jed Rakoff, presiding over the trial, had earlier in December last year ruled in favor of the SEC regarding allegations that Terraform Labs violated securities laws by selling unregistered securities in the form of the stablecoin Terra. However, he determined that the jury’s judgment was necessary to decide whether there was intent to deceive investors into believing Terra was a safe asset, and thus the jury trial began on the 25th of last month.

The SEC claimed that when the value of the cryptocurrency Terra issued by Terraform Labs fell below $1 in May 2021, Terraform Labs secretly contracted with third parties to purchase large amounts of Terra to prop up the price, engaging in market manipulation. However, by May 2022, Terra’s value had fallen to an irrecoverable state, and the entire system collapsed, resulting in investors suffering losses estimated by the SEC to exceed $40 billion.

Additionally, the SEC alleged that Kwon promoted Terraform Labs’ blockchain as being used in South Korea’s simple payment application ‘Chai,’ but it was never actually used, and all promotional claims were false. In closing arguments, the SEC’s attorney stated that Terraform Labs’ success story was “built on lies” and that “if you take a big swing and miss but hide it from people, that constitutes fraud.”

Terraform Labs countered that the SEC’s claims relied solely on testimonies from witnesses hoping to receive whistleblower rewards, but failed to convince the jury.

The SEC requested the court to impose substantial punitive damages on Kwon and Terraform Labs and to recover illegal profits in this lawsuit.

Kwon has been detained locally since his arrest in Montenegro last March on charges of passport forgery while on the run. This verdict is expected to impact the criminal trial Kwon faces in the U.S. When Kwon was arrested in Montenegro last year, New York prosecutors indicted him on eight charges, including securities fraud, wire fraud, commodity fraud, and conspiracy to manipulate the market. Separately, Kwon is also criminally charged in South Korea.

Earlier last month, the High Court of Montenegro initially decided to extradite Kwon to the U.S. but later reversed the decision and ordered extradition to South Korea. However, on the 5th, the Supreme Court of Montenegro invalidated the decision to extradite Kwon to South Korea and remanded the case to the lower court. Accordingly, the likelihood of Kwon being extradited to the U.S. has increased.

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