As SEC Backs Do Kwon Trial Delay, What’s Next For Terra Founder?
SEC agreed on delaying Do Kwon's (right) trial | Credit: Filip Filipovic/Getty Images
Key Takeaways
- The trial involving Terraform Labs and Do Kwon has been postponed until at least April 15.
- The SEC opposes holding separate trials for Terraform Labs and its founder, arguing the cases are essentially identical.
- Kwon is accused of misleading investors on TerraUSD and Terra blockchain.
- Montenegro could just expel Kwon to speed up extradition.
The trial in the United States involving Terraform Labs and its co-founder Do Kwon, originally set for January 29, has been postponed.
The United States Securities and Exchange Commission (SEC) filed a request in a Manhattan federal court for the delay. The regulated said it wanted Kwon, who is awaiting extradition from Montenegro, to attend.
Kwon’s Trial Postponed to April 15 as SEC Opposes Separate Trials
The decision to postpone the trial comes after Kwon’s lawyer indicated that Kwon, who is facing allegations related to a $40 billion cryptocurrency fraud, wishes to be present at the trial and has consented to extradition. The SEC expects Kwon could arrive in the United States by mid-March. This, it says, justifies the need for a brief postponement.
The SEC has expressed opposition to holding separate trials for Terraform Labs and its co-founder Do Kwon. The regulatory body argues the cases against both are essentially identical. Therefore, it says, having two trials would unnecessarily compel whistleblowers and ordinary retail investors to testify twice. This position was outlined in the context of the ongoing legal proceedings.
The decision to potentially reschedule the trial now rests with US District Judge Jed Rakoff. The SEC has proposed April 15 as a new trial date, citing scheduling conflicts. Meanwhile, Kwon’s lawyer has requested a delay until at least March 18. On Monday, it was noted that Kwon’s legal representative would not seek further postponements, even if Kwon is unable to attend the trial on the newly proposed date.
SEC Alleges Fraud in TerraUSD Collapse, Seeks Joint Trial
The legal case in question revolves around the dramatic collapse of TerraUSD, a stablecoin which was intended to consistently maintain a value of $1, and Luna, a more conventional cryptocurrency token. The stability of TerraUSD was a critical aspect of its design, intended to differentiate it from the typically more volatile nature of other cryptocurrencies.
In May 2022, TerraUSD experienced a catastrophic failure to uphold its $1 peg, which subsequently led to a staggering loss of value, estimated at $40 billion or more, for both TerraUSD and Luna. This event marked one of the most significant downturns in the cryptocurrency market, raising questions about the inherent stability and reliability of stablecoins.
The SEC alleges that Terraform Labs and Do Kwon misled investors regarding the stability of TerraUSD. Additionally, the SEC claims that there were misrepresentations about the usage of the Terraform blockchain by a popular Korean mobile payment app for settling transactions.
These allegations form the core of the SEC’s case, underpinning the legal challenges facing Terraform Labs and Kwon. The outcome of this case is likely to have significant implications for the broader cryptocurrency market, particularly concerning the regulation and oversight of stablecoins and related digital assets.
US Judge Rules Against Terraform Labs in Crypto Case
Last month, U.S. District Judge Jed Rakoff made a significant ruling in the case involving Terraform Labs and its co-founder Do Kwon. He determined that both Terraform and Kwon had breached U.S. law by not registering TerraUSD and Luna, two cryptocurrencies central to the case.
In addition to the ongoing civil litigation, Do Kwon faces related criminal charges in the United States. He is also the subject of an extradition request from his native South Korea. Kwon was apprehended in Montenegro in March last year, marking a key development in the international legal proceedings surrounding the collapse of TerraUSD and Luna. This case has implications for cryptocurrency regulation and the legal responsibilities of crypto entities.
Expert: Montenegro Could Expel Do Kwon
Crypto legal expert, David Lesperance, previously provided insights into the complexities of the extradition process. Extradition is a legal procedure where one country formally requests the extradition of an individual from another.
Lesperance highlighted that extradition is typically a lengthy process. It can, in some instances, be speeded up through direct agreements between governments. The process allows for appeals. Due to its often protracted nature, governments may seek alternative means to make it quicker.
Specifically addressing Kwon’s situation, Lesperance told CCN one approach Montenegro might take. He suggested that the Balkan state could expel Kwon instead of going through the formal extradition process. This would be based on the premise that Kwon is neither a citizen nor a resident of Montenegro. Therefore, he does not have any legal status as a visitor in the country. By choosing this route, Montenegro would effectively be removing Kwon, allowing the requesting country to apprehend him.
This sheds light on the potential legal pathways and strategies that countries may employ in extradition cases, particularly in complex international scenarios involving high-profile individuals and serious allegations.
