What recent changes did the U.S. Department of Justice make regarding its approach to cryptocurrency enforcement? How does the DOJ’s new memo specifically affect the prosecution of Do Kwon? What charges is Do Kwon currently facing in court? Will the prosecution alter their approach towards Kwon’s case in light of the new memo? How might Kwon’s defense utilize the DOJ’s memo in pre-trial motions?
NEW YORK, NY — A recent U.S. Department of Justice staff memo dismantling the DOJ’s crypto unit and narrowing the scope of its crypto-related enforcement priorities will have no impact on the prosecution of Terraform Labs co-founder and former CEO Do Kwon, prosecutors said Thursday. The memo, sent Monday evening by U.S. Deputy Attorney General Todd Blanche, informed staff that the DOJ would no longer be pursuing prosecution against crypto exchanges, mixing services, or offline wallets for the acts of their end users. Blanche told staff not to criminally charge any violations of federal securities or commodities laws, except under specific circumstances, in cases where the charges would “require the [DOJ] to litigate whether a digital asset is a ‘security’ or a ‘commodity’” and there is an adequate alternative criminal charge. During a hearing on Thursday, U.S. District Court Judge Paul Engelmayer of the Southern District of New York (SDNY) asked prosecutors whether Blanche’s memo would have any impact on the charges against Kwon, which include two counts of commodities fraud and two counts of securities fraud, as well as five other charges including wire fraud and conspiracy to defraud. The prosecution told Engelmayer that they have “no plans” to change their charges against Kwon at this time. David Patton, Kwon’s lead attorney and a partner at Hecker Fink LLP, told Engelmayer that the contents of Blanche’s memo could — at least indirectly — lead to some pre-trial motions from the defense. “I do think it could potentially be the subject of some pre-trial motions,” Patton said. “It may or may not be directly related to the memo.” Patton specified that the questions of whether the cryptocurrencies involved in the case were securities or not could be relevant. In a separate civil case brought by the U.S. Securities and Exchange Commission (SEC) against Kwon and Terraform Labs last year, in which Kwon and his company were found to be liable for fraud, another SDNY judge found that the tokens involved in the case were, in fact, securities. During Thursday’s hearing, Engelmayer told both the prosecution and the defense to inform him well in advance of the trial if they planned to request that he adhere to any of the rulings or findings made by the court in the SEC case. The next batch of pre-trial motions are expected to hit the docket in July, and a third status conference has been scheduled for June 12 at 11 a.m. in New York. Due to scheduling challenges, the start date for Kwon’s criminal trial has been pushed back three weeks from January 26, 2026 to February 17, 2026.
Read more: Do Kwon’s Criminal Trial Set for 2026 as Lawyers Deal With ‘Massive’ Trove of Evidence
DOJ Crypto Enforcement Memo Has No Bearing on Do Kwon’s Criminal Case, Prosecutors Say
In a recent development within the complex world of cryptocurrency regulation and enforcement, the U.S. Department of Justice (DOJ) made headlines with a memo outlining a renewed focus on combating cryptocurrency-related crimes. This memo, however, has been firmly stated to have no bearing on the criminal case involving Do Kwon, the co-founder of the now-defunct Terraform Labs. Prosecutors have clarified the implications of this memo, shedding light on the ongoing legal complexities surrounding Kwon’s situation and the broader regulatory landscape for cryptocurrencies.
Overview of Do Kwon’s Case
Do Kwon is a significant figure in the crypto space due to his role in creating Terra, a blockchain project that featured the TerraUSD (UST) stablecoin and its sister token, LUNA. The collapse of both tokens in May 2022 resulted in losses of billions of dollars for investors and triggered widespread scrutiny from regulators and law enforcement agencies worldwide. Kwon faced multiple counts of fraud and other charges related to his alleged role in orchestrating a Ponzi scheme that swindled investors out of their funds.
Kwon’s legal troubles intensified when U.S. authorities issued a warrant for his arrest, and he was eventually apprehended in Montenegro in March 2023. Since then, Kwon has been fighting extradition to the U.S. to face the charges, which include conspiracy to commit fraud and market manipulation. As the legal proceedings unfold, every development, including memos from authoritative bodies like the DOJ, is critically analyzed for its potential impact on Kwon’s case.
The DOJ Crypto Enforcement Memo
On October 12, 2023, the DOJ released a comprehensive memo outlining a framework for cracking down on what it termed "illicit activities" within the cryptocurrency sector. The memo highlighted the agency’s commitment to tackling a wide range of crimes, including securities fraud, wire fraud, and money laundering, particularly as they relate to cryptocurrencies.
Notably, the memorandum also emphasized the need for collaboration with international partners to effectively combat cross-border cryptocurrency crimes, marking a significant shift in the enforcement approach towards crypto-related offenses. It indicated that regulatory efforts would be amplified in response to the growing challenges posed by decentralized finance (DeFi) platforms and a surge in fraudulent schemes exploiting cryptocurrencies.
Given the memo’s detailed directives on enforcement, there was speculation surrounding its potential influence on ongoing criminal cases linked to cryptocurrency, including Do Kwon’s. However, prosecutors have been quick to clarify that the DOJ memo does not change the trajectory or foundational aspects of Kwon’s ongoing criminal proceedings.
Prosecution’s Position
Prosecutors working on Kwon’s case have explicitly stated that the DOJ’s recent memo does not alter the legal framework under which Kwon is being prosecuted. They assert that the committed crimes in question are adequately covered by existing laws, which are clearly defined and not dependent on the new guidelines set forth in the memo. This clarification is particularly significant as it reassures investors and stakeholders that dynamic shifts in regulatory rhetoric will not create loopholes or alterations that might benefit Kwon.
The prosecution maintains that their case is built on substantial evidence gathered prior to the issuance of the DOJ memo. They argue that the development of this case is not contingent upon the ever-evolving guidelines or statements from the DOJ but rather stands on solid ground established through investigative work and legislative frameworks already in place.
Implications for Cryptocurrency Regulation
The juxtaposition of Kwon’s case and the DOJ’s enforcement memo throws into relief the complexities surrounding cryptocurrency regulations. The industry has witnessed explosive growth, but with that growth has come significant risks, including fraud and mismanagement. Prosecutors are keen to send a message that fraudulent activities in the crypto space will be met with rigorous investigation and prosecution, as illustrated by Kwon’s case, but they want to ensure that this commitment does not blur the lines of legal standards and due process.
Moreover, the clarity provided by prosecutors regarding the lack of influence of the DOJ memo on Kwon’s case may serve as a precedent for other cases within the crypto realm. It signals to both investors and the crypto community that regulatory measures being implemented will not retroactively affect established legal principles and expectations.
Conclusion
As the legal saga surrounding Do Kwon continues, the proactive stance taken by prosecutors reaffirms their commitment to following due process while upholding the integrity of the legal system. While the DOJ’s enforcement memo signals a renewed vigour in tackling cryptocurrency-related crimes, its lack of influence on Kwon’s case highlights the importance of maintaining a consistent legal framework amidst a rapidly evolving regulatory environment. For Kwon and others in similar situations, the coming months will be critical as they navigate the complexities of a legal landscape that is both cautiously evolving and firmly rooted in established judicial principles. The outcome could have lasting implications, not only for Kwon but also for the broader cryptocurrency ecosystem and the regulatory measures governing its future.
Prosecutors have indicated that the recent Department of Justice (DOJ) Crypto Enforcement Memo will not impact the ongoing criminal case against Do Kwon, the founder of Terraform Labs. Kwon faces multiple charges related to the collapse of the algorithmic stablecoin TerraUSD and its associated cryptocurrency, Luna, which resulted in significant financial losses for investors.
The DOJ’s memo outlines a framework for enforcing regulations in the cryptocurrency space, emphasizing the need for transparency and accountability among digital asset companies. However, prosecutors argue that the specifics of Kwon’s case are not influenced by this guidance. They maintain that the charges filed—such as fraud and conspiracy—are based on evidence directly tied to his actions and decisions regarding Terraform Labs and its products, rather than broader policy changes or enforcement strategies presented in the memo.
The distinction highlights the complexities involved in regulatory practices in the cryptocurrency industry and indicates that ongoing legal proceedings will be assessed based on existing evidence and the law, rather than shifts in the regulatory landscape.