The trial of the disgraced former CEO and founder of Terraform Labs, Do Kwon, has been pushed back to late March after his lawyers argued that he faces challenges getting out of Montenegro, where he is currently in detention.
Kwon was charged by the U.S. Securities and Exchange Commission (SEC) in February over the collapse of Terra USD and LUNA ecosystem.
“Despite Kwon’s representation that he has consented to his extradition from Montenegro, where he is presently being held, there is no absolute guarantee that he will be released in time for his appearance at a late March trial,” said Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, in a court order on Tuesday.
“Nevertheless, the Court will indulge his counsel’s request given their express recognition that the trial cannot be further postponed.”
Kwon was initially scheduled for a January 29 jury trial on fraud charges. However, the
postponement acknowledges the difficulties in getting the former CEO extradited from his detention in Montenegro, which will likely not take place until February or March at the earliest.
“While Mr. Kwon, through his counsel in Montenegro, has made every effort to be extradited from Montenegro as quickly as possible, the process has been slow going and is made more complicated by the dueling requests and the fact that Mr. Kwon is serving a sentence in Montenegro for his conviction on the local charges there,” said Kwon’s lawyers.
Kwon was arrested in Montenegro in March 2023 on charges of using fake passports. Since then, the U.S. and South Korea (where he also faces charges) have been fighting for his extradition.
The SEC filed suit against Do Kwon and Terraform in February 2023, accusing the pair of a “multi-billion dollar crypto asset securities fraud” and of “offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.”
Last month, Judge Rakoff sided with the SEC over the claims that Terraform Labs offered unregistered securities, granting a summary judgment order in favor of the regulator while siding with the defendants “on the claims involving offering and effecting transactions in security-based swaps.”
Rakoff is yet to rule on further fraud-related charges, and a jury will decide Kwon’s fate—if and when he arrives in the U.S., and his trial can go ahead.
Kwon on the lam
Terraform Labs collapsed in May 2022 when its TerraUSD (UST) algorithmic stablecoin lost its peg to the U.S. dollar, leading to the printing of more of the company’s native token, LUNA, in an attempt to prop up UST. This, in turn, eventually led to a crash in LUNA, and the whole Terra ecosystem came tumbling down, with an estimated $60 billion being wiped out of the digital asset space.
Amidst the fallout, Kwon disappeared, effectively going on the run—although he denied this—as authorities in his native South Korea issued an arrest warrant for him in September for violating capital market rules with Terraform Labs, while he was charged with fraud and money laundering by the U.S. SEC.
Eventually, Kwon resurfaced in Montenegro when he was arrested in March 2023 for using fake passports—a behavior suspiciously reminiscent of someone who doesn’t want to be found. His sentence was initially scheduled to end on December 15, but since extradition had yet to be decided, South Korean and U.S. authorities requested an extension of his term by two months to February 15.
It appeared that the U.S. was about to win the race to be the first to prosecute Kwon in December, with the Wall Street Journal reporting that his extradition to the U.S. was imminent. However, this turned out to be premature, as a few weeks later an appellate court in Montenegro ruled that there were procedural issues in the U.S. Justice Department’s request.
Kwon’s minor victory saw the court cancel the November 17 court ruling that had set the stage for his extradition. In a statement, the court noted that the extradition request by the U.S. was processed and approved irregularly.
With his U.S. jury trial being pushed back until March, it seems the Justice Department is still optimistic it can get Kwon extradited at some point in the next couple of months.
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