Do Kwon, a central figure in the $40 billion TerraUSD and Luna collapse, appeared before a U.S. judge shortly after his extradition from Montenegro, where he had served a prison term for using false travel documents while evading authorities for over a year.

Prosecutors allege that from 2018 to 2022, Kwon orchestrated a scheme to mislead investors regarding the stability and functionality of TerraUSD, a so-called “algorithmic stablecoin” designed to maintain a $1 peg, along with its companion token Luna. The tokens’ swift crash in May 2022 wiped out an estimated $40 billion in market value. Federal prosecutors, along with the U.S. Securities and Exchange Commission, claim Kwon and Terraform Labs employed secret arrangements and deceptive tactics to prop up the currency’s price, contradicting public statements about its ability to maintain stability on its own.

The newly unsealed indictment adds a money laundering charge to the eight existing counts of securities fraud, wire fraud, commodities fraud, and conspiracy. According to court documents, authorities say Kwon’s “constructed financial world was built on lies,” alleging that core products of Terraform Labs did not function as advertised and were manipulated behind the scenes. Prosecutors also point to significant losses incurred by investors who relied on promises of a self-sustaining, decentralized ecosystem.

Kwon did not speak during the hearing except to confirm that he understood English. His defense team entered a not guilty plea, emphasizing that market forces, rather than fraudulent conduct, led to TerraUSD’s downfall. Defense lawyers have previously argued that most Terraform Labs token sales did not occur in the United States, disputing the scope of the SEC’s jurisdiction and the extent of the alleged financial damage.

Thursday’s developments build on a series of legal challenges for Kwon. In April 2024, a jury in New York found Terraform Labs and Kwon liable for fraud in a civil case brought by the SEC, citing misrepresentations about TerraUSD’s stability. One month later, Terraform Labs’ attorneys argued against the SEC’s claims, contending that the majority of transactions happened outside the U.S. In June 2024, Kwon agreed to pay an $80 million fine—part of a larger $4.5 billion settlement with the SEC that included a ban on further cryptocurrency transactions. Despite this settlement, criminal proceedings continued, leading to his arrest in Montenegro in 2023 and subsequent extradition.

Kwon, once dubbed by some industry observers as a rising “cryptocurrency king,” faces the possibility of a lengthy prison term if convicted on all criminal counts. Though the maximum penalties under federal law could exceed a century, actual sentences typically fall below the highest possible threshold. His next court date in the United States has not yet been set, leaving investors, regulators, and observers on social media platform X abuzz with speculation about the case’s future impact on broader crypto regulation.

For now, the 32-year-old entrepreneur remains in custody pending further legal proceedings. Prosecutors have indicated they will push for significant punitive measures, viewing Kwon’s alleged actions as a cautionary tale of what can happen when stability claims and technological promises collide with the reality of volatile crypto markets.