Do Kwon and Terraform Labs Found Liable for Ecosystem Collapse

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  • Do Kwon and Terraform Labs were found liable on civil fraud charges by a Manhattan jury on Friday for the collapse of the Terra ecosystem
  • The jury reached its verdict in just two hours, reflecting the severity of the charges brought by the US Securities and Exchange Commission
  • Kwon’s absence, necessitated by the delay in his extradition from Montenegro, did not deter the jury from holding him accountable for the ecosystem’s implosion.

Do Kwon and the company he co-founded, Terraform Labs, were both found liable on Friday for the collapse of the Terra ecosystem and several charges related to it. A Manhattan jury found the pair liable on civil fraud charges brought by the US Securities and Exchange Commission (SEC) in connection with the $40 billion implosion of the ecosystem in May 2022, withe the jury taking just two hours to come to its verdict. Kwon was not present for any of the trial as he awaits a final decision on his extradition from Montenegro.

Two Hour Deliberation

The SEC brought its case against Kwon and Terraform Labs in February last year, accusing the co-founder of “orchestrating a multi-billion dollar crypto asset securities fraud.” The former CEO was accused of hiding the truth about the stability of the UST stablecoin, with the agency arguing that Kwon knew it had the potential to be volatile and that he offered unregistered securities through the platform.

The trial lasted nine days, with Kwon absent for the whole thing following his extradition merry-go-round, which could see him extradited to South Korea first. Closing arguments were heard on Friday, with the jury reaching its decision two hours after being sent away to deliberate, finding both entities guilty on all charges.

Penalty to be Decided

The SEC released a statement shortly after the verdict in which its Enforcement Director Gurbir Grewal hailed the verdict:

We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud. Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments. Through these deceptions, the defendants caused devastating losses for investors and wiped out tens of billions of market value nearly overnight. 

A spokesperson for Terraform Labs told CoinDesk that the company was “very disappointed with the verdict, which we do not believe is supported by the evidence” and added that it maintains its stance that “the SEC does not have the legal authority to bring this case at all,” which is rather moot now.

The penalty, which will be decided in the coming months, will be purely financial in nature, but whether Terraform Labd will be able to afford it is another matter altogether; the company filed for bankruptcy in January, although it did say there was enough money left to file a do-or-die appeal should the verdict go against it.