The details of the defeat of the founder of LUNA were revealed, and the fate of the Korean crypto boss was in doubt

原文标题：Crypto Magnate Do Kwon Found Liable for Multibillion-Dollar Fraud

原文作者:Joel Khalili

Source: Wired

编译:比推Bitpushnev Yanan

A federal jury in New York recently announced an important verdict in which South Korean crypto tycoon Do Kwon and his company Terraform Labs were found guilty of fraud. The ruling gives a glimmer of justice to investors who have invested billions of dollars in crypto assets only to see their value nearly zero.

The origins of this civil lawsuit can be traced back to February 2023, when the U.S. Securities and Exchange Commission (SEC), the regulator responsible for protecting the rights and interests of investors, stepped forward and filed a civil lawsuit against Kwon and Terraform. The indictment exposes in detail how the defendants orchestrated a fraud drama that resulted in the loss of a massive fortune of up to $40 billion to the market. They weave a beautiful lie to investors, exaggerating the prospects and stability of the crypto tokens they issue, luring countless people into this financial maelstrom.

After the market crash in 2022, Kwon embarked on the path of absconding. Not only did he face criminal charges in the United States, but he was also the target of a hunt by the South Korean police. The erstwhile crypto tycoon was recently released on bail from a prison in Montenegro — where he was arrested last year and is now awaiting extradition.

In Kwon's absence, the South New York District jury listened carefully to the testimony of investors who purchased Terraform tokens, internal whistleblowers who had worked with Terraform, and other key witnesses. After less than two hours of in-depth deliberation, the jury unanimously found Kwon and Terraform to be clearly responsible for the false claims and the civil fraud that misled investors.

In a subsequent statement, SEC Enforcement Director Gurbir S. Grewal said, "We are pleased with today's jury verdict, which clearly found Terraform Labs and Do Kwon responsible for a massive crypto fraud. Despite the seemingly attractive prospects of crypto investment and the promise of all sorts of good things, the lack of necessary compliance measures has led to extremely serious consequences for real-world investors. We will continue to unswervingly uphold the fairness, transparency and order of the market and protect the legitimate rights and interests of investors. ”

Market analyst Noelle Acheson, who previously worked at crypto brokerage Genesis Trading, said the outcome of Kwon's civil trial, as well as the recent verdict against Sam Bankman-Fried, founder of crypto exchange FTX, marked the end of a painful period for the crypto industry. Acheson commented: "Many people are deeply saddened by Do Kwon's actions. Those investors felt betrayed. She further noted: "Hopefully, these events will serve as a reminder to do your homework and ask more targeted questions before investing to avoid being fooled by empty and unrealistic promises again." ”

Kwon founded Terraform in 2018 with co-founder Daniel Shin. In 2020, the company ambitiously announced the launch of a stablecoin called TerraUSD (UST), claiming that its value would be pegged to the U.S. dollar, providing investors with a safe haven from the volatility of other cryptoasset markets.

Stablecoins typically maintain their specific value through a basket of underlying assets, such as cash and short-term government bonds, and allow investors to exchange them at any time. However, Terraform claims that UST will employ a unique mechanism to maintain its value peg to the U.S. dollar through a complex algorithm that is pegged to another token issued by the company called LUNA. If the value of UST deviates by $1, traders are theoretically incentivized to buy or sell stablecoins to bring the value back to the target level.

At the beginning of 2022, UST and LUNA were very popular, with LUNA once becoming the top 10 cryptocurrencies in the world in terms of circulating currency value, and UST also performed well. Acheson said: "The mechanism was both interesting and new, and many smart people believed it would work successfully at the time. ”

In May 2022, a sudden storm swept through the cryptocurrency market. When a large number of UST holders began selling the token in bulk, UST quickly detached itself from the peg to the US dollar, and the market panicked and triggered a broader sell-off, with the price of UST falling to almost zero. At the same time, other tokens related to LUNA and Terraform have also taken a hard beating, and their market capitalization has shrunk significantly. "The clever mechanism claimed by UST is based on the false assumption that people expect it to self-correct, so it is self-correcting," Acheson said. She further noted, "[Kwon] misled a lot of investors by making unrealistic marketing claims about the stability of stablecoins. ”

This event not only sent the crypto market into a downward spiral, but also triggered a series of chain reactions. A series of crypto companies have been in trouble as a result, starting with hedge fund Three Arrows Capital, which declared bankruptcy in June. Subsequently, crypto lending companies Voyager Digital, BlockFi, and Genesis also fell into trouble, and even indirectly affected the stability of other large crypto companies such as FTX. The storm has sent an unprecedented chill to the entire crypto industry.

After this chain of events, Kwon, the founder of Terraform, fled from Singapore to Dubai and then to Serbia. However, he was eventually arrested in Montenegro. At the same time, Kwon was sentenced to four months in prison for trying to escape the country using a forged Costa Rican passport. Market analyst Acheson pointed out that the "arrogant" attitude shown by Kwon actually reflects some of the long-standing problems in the crypto ecosystem.

The SEC lawsuit against Kwon and Terraform focuses on two core allegations. First, they were accused of misleading investors by claiming that UST has the ability to self-recover to a dollar valuation without outside intervention. Second, they were accused of falsely claiming that Chai, a major South Korean payments company, was using Terraform technology for its business operations, a false hype that led investors to have high expectations about the prospect of UST's widespread adoption.

In addition, the SEC also alleges that in May 2021, after UST first came out of the anchor level, Kwon entered into a secret agreement with trading firm Jump Trading. Under the agreement, Jump Trading agreed to purchase UST tokens in bulk to assist in its return to the target value. During the trial, an insider who had worked as a software developer at Jump Trading testified as a whistleblower to confirm the existence of this agreement. However, during the SEC's investigation, the president of Jump Trading declined to comment on the matter, citing the Fifth Amendment right, which involves self-incrimination. It is important to note that Jump Trading has not been sued by the SEC.

According to the SEC's allegations, at the same time that Jump Trading stepped in to artificially help UST restore its dollar valuation, Kwon and Terraform began issuing misleading public statements claiming that the token was "self-healing" through a unique mechanism design. This kind of contradictory behavior and rhetoric has caused investors to seriously misjudge the true situation of UST.

In addition, another whistleblower at the SEC, who is also a former executive of Chai, testified that the payments company did not use Terraform technology for transaction processing or settlement, as Kwon claimed. Shockingly, Terraform has also been accused of artificially copying Chai's transaction records on its network in order to create the illusion of a legitimate transaction. To substantiate this allegation, the SEC filed a record of correspondence between the two Terraform co-founders to the court. In these records, Kwon advised them to create "fake deals that look real" and promised to "do my best to make them difficult to tell."

In response to the SEC's attack, former U.S. Attorney Daniel Silva, who now works at Buchalter Law Firm, said the charges were "very strong." "When someone deliberately lies, it becomes very simple," he explained. While the word 'fraud' sounds serious, it actually refers to deliberately lying for the sake of profit. Everyone knows that it's not right to lie – at least to get yourself in trouble. ”

In court, the defense aggressively defended the difference between Terraform's cryptoasset failure and the fraud alleged by the SEC. Kwon's lawyer, David Patton, made it clear in his opening statement: "Failure does not mean fraud. He stressed that investors already have a full understanding of the relevant risk characteristics when investing.

The defense also sought to question the credibility of the SEC whistleblowers, suggesting that they may have come forward motivated by financial gain. At the same time, the defense also denounced the statements of former Jump Trading employees as hearsay rather than conclusive evidence. In addition, the defense further undermined the credibility of Chai's testimony by portraying Chai's whistleblower as a disgruntled former employee.

In addition, the defense insisted that Chai had indeed leveraged Terraform's blockchain technology. Without access to Chai's source code, the defense insisted that the SEC could not prove the veracity of its allegations. Regarding the evidence submitted by the SEC involving the records of communications between Shin and Kwon about "false transactions," the defense said that these records were not directly related to the case, but related to other projects.

In the end, the jury did not accept the defense's arguments.

If found responsible, Kwon and Terraform will face corresponding financial penalties, the exact amount of which will be determined by the judge at a later stage. In addition, they may also be barred from participating in future U.S. securities market activities. However, the impact of this case goes far beyond that.

Prior to the trial, the defense had tried to dismiss the charges on the grounds that the SEC had wrongly classified UST, LUNA and other Terraform tokens as securities and insisted that the SEC had no jurisdiction over them. In fact, the issue of the classification of cryptocurrencies has been a central issue in many legal disputes over crypto cases in the United States, which not only involve the SEC's entanglement with companies such as Ripple and Coinbase, but also reflect the perception of regulators by the entire crypto industry. The SEC has been repeatedly criticized within the industry for adopting a "law enforcement regulation" approach, which relies more on legal action than on establishing clear rules to guide the development of the industry. They are concerned that this regulatory approach will hinder innovation and are trying to expand the scope of the regulator's jurisdiction. The outcome of this case will undoubtedly have a profound impact on these controversies, and will also provide an important reference for the future regulatory direction of the crypto industry.

However, prior to the trial, the New York presiding judge in the case, Jed Rakoff, issued an opinion that categorically dismissed the defense's motion to dismiss the charges. The judge ruled that the SEC has the authority to "address new issues arising from emerging technologies, particularly when those technologies have an impact on markets that are at least superficially similar to securities markets."

While this opinion will not be mandatory for other U.S. judges to follow, it actually provides a clear precedent for crypto companies to be penalized for violating U.S. securities laws, given the SEC's victory in this case, and provides an important reference for similar cases in the future. In response, Lisa Bragança, a lawyer at Bragança Law and former head of the SEC branch, said: "This case was heard by a well-respected and meticulous judge, and his influence cannot be ignored. It is foreseeable that his decision will be cited several times by other judges in the future. ”

Prior to the trial, Terraform had already indicated that they would appeal if faced with an unfavorable verdict, citing the remaining ambiguity over the issue of token classification. "Considering that Kwon was previously unable to appear in person and sit in the lawyer's dock to hear witnesses and respond in person, Terraform's appeal request may be upheld," said Lisa Bragança.

In a public statement, Terraform's spokesperson verbally expressed dissatisfaction with the verdict. They insisted that the verdict was not supported by sufficient evidence and was more like a dead letter. What makes it even more difficult for them to accept is that they believe that the SEC has no authority to file this lawsuit at all. At the moment, they are carefully weighing their options and preparing for their next move.

At this critical juncture, the U.S. Congress has failed to provide clear legislative guidance, leaving the entire crypto industry confused. Silva understands that this thorny classification issue can only be truly resolved when a representative cryptocurrency case has been rigorously heard by the Court of Appeals and even finally touched the threshold of the U.S. Supreme Court. "The development of the law is always accompanied by controversy and uncertainty, and each new case is like a litmus test that makes the law clearer," he lamented. Only now, we are still groping forward. ”

Even in Montenegro, thousands of kilometers away from New York, Kwon's influence has not waned, and he will still play a key role behind the scenes, influencing the outcome of the case. His presence makes this legal battle more confusing, and it also makes people look forward to the final ending.