The US Commodity Futures Trading Commission (CFTC) has proposed a $5-million settlement with Gemini Trust Company, addressing allegations of misleading statements tied to its Bitcoin futures application. Simultaneously, prosecutors overseeing Terraform Labs co-founder Do Kwon’s criminal case have estimated that over one million individuals worldwide may have been affected by the collapse of the Terra ecosystem.
Do Kwon's Criminal Case: Over a Million Victims Estimated After Terra Ecosystem Collapse
In a landmark criminal case that sheds light on the far-reaching impact of the Terra ecosystem's collapse, US prosecutors estimate that more than one million victims worldwide may have been affected by the fallout. The case against Terraform Labs' co-founder, Do Kwon, has drawn global attention and has demonstrated the devastating consequences of the crypto platform's failure.
On Jan. 6, Acting US Attorney Daniel Gitner filed a notice in the US District Court for the Southern District of New York detailing the procedures to inform Kwon's victims of their rights. The scale and nature of the case have made traditional victim notification methods infeasible, prompting prosecutors to propose a dedicated website to keep victims informed of public proceedings.
Gitner emphasized the enormity of the task, citing the vast number of transactions involving Terraform's cryptocurrencies, many of which were conducted through foreign exchanges or anonymous digital wallets. "The Government estimates that the number of victims in this case exceeds hundreds of thousands of individuals and entities, and potentially totals more than one million," he said.
This approach aligns with efforts to ensure transparency and accessibility in a case of unprecedented magnitude within the cryptocurrency sector.
Kwon’s appearance before a US judge on Jan. 2 marked the beginning of a new chapter in his legal battles. Extradited from Montenegro after a prolonged detention, Kwon pleaded not guilty to nine felony charges, including fraud at Terraform Labs. He has agreed to remain in detention while proceedings unfold.
The charges against Kwon stem from the catastrophic collapse of the Terra ecosystem in 2022, which sent shockwaves through the cryptocurrency market. The implosion of Terra’s algorithmic stablecoin, UST, and its companion token, LUNA, wiped out billions of dollars in value and contributed to a broader market downturn that saw numerous firms declare bankruptcy.
Kwon’s legal troubles are not confined to the United States. In 2023, Montenegrin authorities arrested him on unrelated charges, further complicating his legal status. Both the US and South Korea sought his extradition, but it was only in December 2024 that Montenegrin authorities handed him over to US custody.
Kwon’s case joins a growing list of high-profile criminal proceedings against cryptocurrency executives in the Southern District of New York, a jurisdiction that has become a focal point for crypto-related crimes. Former FTX CEO Sam Bankman-Fried and former Celsius CEO Alex Mashinsky are among those facing similar scrutiny, while former Binance CEO Changpeng Zhao recently pleaded guilty to a felony charge in a separate jurisdiction.
The scale of Kwon’s alleged fraud sets his case apart. In April 2024, a US judge ruled that Kwon and Terraform Labs were liable for fraud in a civil case brought by the US Securities and Exchange Commission (SEC). As part of the settlement, Kwon and the company agreed to pay approximately $4.5 billion in disgorgement, civil penalties, and prejudgment interest. This ruling is likely to play a pivotal role in the criminal trial.
Challenges in Quantifying Victim Impact
One of the complexities in Kwon’s criminal case lies in identifying and quantifying the victims. Unlike traditional financial crimes, where transactions are often traceable to individuals, the decentralized nature of cryptocurrency complicates these efforts. Many victims may have conducted transactions anonymously or through foreign exchanges, leaving little personal identifying information.
The collapse of Terra’s ecosystem has left a lasting imprint on the cryptocurrency market. Beyond the financial losses suffered by individual investors, the incident undermined trust in algorithmic stablecoins and prompted regulators worldwide to reevaluate their approach to cryptocurrency oversight.
Kwon’s arrest and subsequent extradition mark a turning point in the global response to crypto fraud. The case brings attention to the need for robust international cooperation in addressing crimes that transcend borders and affect millions of people.
As Kwon faces his criminal trial, questions remain about whether US authorities will offer a plea deal or proceed with a full trial. The outcome will likely set a precedent for how legal systems address large-scale fraud in the cryptocurrency industry.
For the millions of victims, the case represents a chance to seek justice and recover some of their losses. However, the road ahead is fraught with legal and logistical challenges, as prosecutors navigate the complexities of holding a key figure accountable in one of the most significant cryptocurrency collapses to date.
CFTC and Gemini Reach Proposed Settlement: $5M Penalty and Admission of Misconduct
In other crypto legal news, the US Commodity Futures Trading Commission (CFTC) has reached a proposed settlement with Gemini Trust Company, potentially bringing an end to a contentious civil case. The agreement, if approved by a federal judge, would require Gemini to pay a $5-million civil monetary penalty and admit to certain regulatory failings, potentially sparing the company from a prolonged trial.
According to a filing submitted on Jan. 6 in the US District Court for the Southern District of New York, the proposed consent order would resolve all outstanding claims against Gemini. The case, initiated by the CFTC in June 2022, alleged that Gemini provided false or misleading statements in connection with its 2017 application to offer Bitcoin futures contracts.
Under the terms of the proposed settlement, Gemini would acknowledge that it "reasonably should have known" its statements to the CFTC were misleading. Specifically, the filing highlighted that Gemini had entered into bespoke fee arrangements with certain market participants—arrangements that were not disclosed on its website and were more favorable than the publicly advertised terms. These undisclosed agreements, according to the CFTC, were designed to promote trading in Gemini's auction platform.
If approved, the settlement would also enjoin Gemini from making false or misleading statements to the CFTC in the future.
The case stems from Gemini’s 2017 bid to list Bitcoin futures contracts, a move that required the firm to provide accurate and transparent information to the CFTC. The regulator alleged that Gemini’s failure to disclose key fee arrangements undermined the integrity of its application process.
Gemini has consistently denied intentional wrongdoing but has faced mounting pressure as the trial date approached. Initially scheduled for Jan. 21, the trial’s delay came after a federal judge warned that no further adjournments would be granted.
Despite the proposed settlement, Gemini has not issued a public statement regarding the agreement or its implications.
This comes after the CFTC disclosed that it had recovered more than $17 billion in civil monetary penalties, disgorgement, and restitution from enforcement actions, including those against crypto firms In its 2024 fiscal year report.
Gemini’s case also brings renewed attention to the challenges crypto firms encounter when navigating the regulatory landscape. The acknowledgment of misconduct in the proposed settlement could serve as a cautionary tale for other companies seeking to operate within the bounds of US law.
Leadership Changes at the CFTC
The timing of the proposed settlement coincides with significant political developments in the US. President-elect Donald Trump, set to be inaugurated on Jan. 20, has reportedly considered replacing current CFTC Chair Rostin Behnam. However, unlike the US Securities and Exchange Commission, where leadership changes have often followed shifts in administration, no CFTC commissioners have publicly indicated plans to resign ahead of Trump’s term.
A change in leadership at the CFTC could influence the agency’s future enforcement priorities, including its approach to cryptocurrency regulation.
