Do Kwon, Terraform Labs found liable for fraud in SEC case

The decision came a few hours after both the defense and the lawyers representing the SEC gave their closing arguments


Terraform Labs and Adobe Stock modified by Blockworks


A jury found Terraform Labs and its former CEO, Do Kwon, liable for fraud on Friday.

The decision came a few hours after both the defense and the lawyers representing the Securities and Exchange Commission gave their closing arguments.

SEC lawyer Laura Meehan argued that Terraform’s success story was “built on lies,” Reuters reported.

The decision found that Terraform and Kwon misled investors about the stability of Terra USD, an algorithmic stablecoin that crashed back in 2022. 

“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,” SEC’s Gurbir Grewal said in a statement following the decision.

Read more: It’s been 1 year since Terra wrecked crypto for everyone

“We are very disappointed with the verdict, which we do not believe is supported by the evidence. We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps,” a spokesperson for Terraform Labs told Blockworks via email.

The collapse wiped billions from the crypto ecosystem and subsequently triggered a domino effect as Three Arrows Capital, a prominent crypto hedge fund at the time, and lenders like Voyager and Celsius filed bankruptcy in the weeks after the collapse. 

The SEC sued Terraform and Kwon last year, alleging that the company and its CEO conspired to defraud investors. The decision comes nearly a year later, and wraps up a trial that began in mid-March.

Prior to the trial, the SEC notched a few court wins against the company and Kwon. Judge Jed Rakoff ruled that Terraform and Kwon offered and sold unregistered securities in a summary judgment at the end of last year. 

Rakoff ruled that UST, LUNA, wLUNA and MIR fall under the Howey definition of a security because “they are investment contracts.”

Kwon, however, was not present for the trial as the former executive remains detained in Montenegro pending an extradition decision. He’s faced multiple court rulings, with the most recent one ordering an extradition to South Korea. However, a press release from the Supreme Court in Montenegro Friday announced that the decision had been scrapped. 

It remains unclear whether Kwon will be extradited to the US or South Korea.

Updated April 5, 2024 at 4:55 pm ET: Added statement from Terraform Labs.

Updated April 5, 2024 at 4:13 pm ET: Added statement from SEC; modified headline.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.


Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report cover graphics (4).jpg


Despite crypto gaming related projects and funds raising close to a billion dollars in November 2021, there have been only a handful of games that have attracted users apart from mercenary capital, and have had sustained activity for longer than a few months. Crypto gaming is going through an infrastructure phase. Theoretically, crypto gaming stands to benefit from purpose-built, high throughput chains, where blockspace is cheap (especially for games which are fully onchain). However, despite the launch of many gaming-focused chains, most crypto games are lacking in quality and quantity. Most new crypto gaming infrastructure either have no games or only a few games launched (e.g. Xai) or have failed to garner meaningful attention (e.g. Immutable X).


As Bloomberg analysts up their ether ETF approval odds, concerns about ETH’s liquidity and its possible status as a security remain


Ethereum is becoming a multilayered lasagna-like system, pushing people to the margins with its complexity and fees


Ether would be set to re-test its 2021 price high should the regulator unexpectedly approve ETH funds, industry watchers say


The Financial Innovation and Technology for the 21st Century Act, known as the FIT21 Act, is expected to head to the floor for a vote in the House in the afternoon on May 22


NYAG announced details about its settlement with bankrupt lender Genesis on Monday


The $948 million of inflows from May 13 to May 17 roughly equaled the net money that left the fund category over the five prior weeks