Terraform Labs co-founder Do Kwon is set to stand trial on Jan. 26, 2026, after being extradited to the US. According to a report by Inner City Press on Jan. 8, a pretrial conference has been scheduled for Mar. 6, 2025, with updates due by Feb. 27. Judge Paul Engelmayer has encouraged plea discussions, but both parties expect the case to go to trial.
Federal prosecutors have alleged that the Terraform ecosystem was built on deceptive practices. Assistant US Attorney Jared Lenow described Terraform’s operations as a “Potemkin village,” claiming that the company’s products were unstable and required manipulation to maintain their value. He also accused Kwon of misrepresenting the stability of the algorithm stablecoin TerraUSD (UST).
The indictment against Kwon includes multiple fraud and securities violations, with specific allegations related to TerraUSD’s stability. Kwon’s defense, led by attorney Michael Ferrara, argues that Terraform’s products were legitimate and functioned as described until market sentiment changed. Ferrara contended that TerraUSD’s stability relied on demand, which disappeared during a panic.
The trial, expected to last four to six weeks, will address fundamental questions about the classification of crypto under US law. Prosecutors claim that LUNA, Terra’s native token, qualifies as a security, a designation that could have significant implications for the crypto industry. However, defense attorneys argue that Terraform’s tokens do not meet the criteria established under the Howey Test for securities.
The case involves a substantial amount of evidence, including six terabytes of data from seized devices, emails, Slack communications, trading records, and video statements. The government has promised to provide discovery materials promptly, but both sides acknowledge the logistical challenges involved. Judge Engelmayer highlighted the need for transparency and fairness in discovery, despite the daunting task of reviewing such extensive material.
Do Kwon remains in custody in New Jersey, facing allegations of orchestrating a crypto fraud scheme that resulted in over $40 billion in losses when LUNA and TerraUSD collapsed in May 2022. After evading capture for nearly a year, Kwon was apprehended in Montenegro in March 2023. Following a lengthy extradition battle, he was eventually extradited to the US on Dec. 27, 2024.
In a court appearance on Jan. 2, Kwon pleaded not guilty to charges related to the Terra ecosystem collapse. The legal proceedings surrounding this case are complex, with ongoing investigations and potential prosecutions in South Korea adding another layer of difficulty to Kwon’s defense strategy. The outcome of this trial could have significant implications for the regulation of crypto assets in the US and beyond.