Do Kwon Pleads Not Guilty as Legal Battle Begins in US

The hearing followed his extradition from Montenegro. Meanwhile, a California resident sued three Asian banks for allegedly enabling a $1 million crypto scam by failing to conduct proper KYC and AML checks. US lawmakers also recently demanded answers about a Treasury Department cyber breach that was attributed to a Chinese APT group. Additionally, blockchain firm Virtuals Protocol addressed a critical vulnerability in one of its smart contracts which was discovered by researcher Jinu.

Do Kwon’s Legal Saga Unfolds with First Hearing in New York

Terraform Labs co-founder Do Kwon appeared before a US magistrate in New York on Jan. 2 of 2025, where he pleaded not guilty to charges linked to the collapse of the Terra ecosystem. The charges include securities fraud, wire fraud, money laundering, and commodities fraud. 

This was Kwon’s first legal hearing since his extradition to the United States. During the hearing, Kwon agreed to be held without bail, and a status conference is scheduled for Jan. 8, 2025, to address evidence sharing and motions as the case moves toward trial.

Do Kwon

Kwon’s extradition happened after a decision by Montenegrin authorities, who deemed that he met the criteria to be extradited to either the United States or South Korea. On Dec. 27, Montenegrin Minister of Justice Bojan Božović finally approved Kwon’s extradition to the US due to the gravity of the crimes, the location of the offenses, and other legal considerations. By Dec. 31, Montenegrin Prime Minister Milojko Spajić confirmed Kwon was in US custody.

The legal developments are part of a broader saga for Kwon, whose extradition process and subsequent legal battles have been ongoing since 2023. Terraform Labs previously reached a settlement with the US Securities and Exchange Commission (SEC) in June of 2024 by agreeing to pay $4.47 billion, including $204 million in penalties related to Kwon’s actions. 

Lawsuit Alleges Banks Enabled Crypto Fraud

Kwon is not the only crypto figure currently facing legal issues. A California resident, Ken Liem, filed a lawsuit against three Asia-based banks. He alleges that they failed to conduct basic checks that could have prevented him from falling victim to a crypto scam. The lawsuit was filed in a California district court on Dec. 31 of 2024, and claims Liem was defrauded of almost $1 million in a pig butchering scam after being contacted on LinkedIn in June 2023 about a crypto investment opportunity.

Pig Butchering scam flow (Source: Datos Insights)

According to Liem’s attorneys, he was persuaded over several months to transfer funds to alleged fraudsters under the pretense of cryptocurrency investments made on his behalf. The funds were transferred to accounts at Hong Kong-based Fubon Bank and Chong Hing Bank, as well as Singapore-based DBS Bank, before being funneled into other third-party accounts. 

The suit accuses the banks of failing to perform adequate Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, which the attorneys argue would have flagged concerns about the account holders and potentially prevented the accounts from being opened.

The attorneys also allege the banks very likely knew of a high probability that the accounts were intended for fraudulent activities, and stated that a simple review would have revealed no credible evidence of lawful or legitimate business activities. They further claim that the banks enabled the movement of illicit funds.

Additionally, the lawsuit accuses the banks of failing to comply with the US Bank Secrecy Act, which mandates that financial institutions have to maintain detailed transaction records and report suspicious activities to the Financial Crimes Enforcement Network. Liem’s legal team argues that the banks are subject to this act because DBS has a branch in California and Fubon and Chong Hing processed transactions through Liem’s account at Wells Fargo in the US.

The suit names Hong Kong-based entities Richou Trade, FFQI Trade, Xibing, and Weidel, and accuses them of unlawfully diverting Liem’s funds to third-party accounts and falsely claiming the money would be used for cryptocurrency investments. Liem’s attorneys are asking for a jury trial and at least $3 million in damages.

Lawmakers Demand Answers on Treasury Cyber Breach

Meanwhile, two US Republican lawmakers urged the Treasury Department to provide details about a cybersecurity breach that was attributed to a Chinese state-sponsored entity. Senator Tim Scott and Representative French Hill, who are both prominent members of the Senate Banking Committee and the House Financial Services Committee, sent a letter to Treasury Secretary Janet Yellen on Dec. 31 of 2024, requesting a full congressional briefing by Jan. 10.

The lawmakers are both very concerned about the breach that happened on Dec. 2, which allowed an advanced persistent threat (APT) actor to access employee workstations and certain unclassified documents. Scott and Hill placed a lot of emphasis on just how important it is to safeguard sensitive federal information, especially considering the Treasury holds critical data, including tax information, business beneficial ownership records, and suspicious activity reports.

They also questioned the Treasury’s existing cybersecurity measures and demanded information about the nature of the documents that were accessed, how the breach occurred, and the steps being taken to prevent similar incidents in the future. They called for immediate improvements to protocols protecting federal systems from foreign adversaries.

The Treasury Department confirmed the incident in a Dec. 30 letter, and attributed it to a Chinese state-sponsored APT group. The Treasury also promised to provide a supplemental report within 30 days, which is required by the Federal Information Security Modernization Act. Meanwhile, China denied any involvement in the attack, and rejected the US accusations.

Virtuals Protocol Fixes Bug

The US Treasury Department was not alone in its security slipup. Virtuals Protocol, a blockchain firm specializing in artificial intelligence agents, recently addressed a critical vulnerability that was discovered in one of its audited smart contracts. On Dec. 3, 2024, pseudonymous security researcher Jinu identified the issue and reported it to the company. However, Jinu learned that Virtuals Protocol did not have an active bug bounty program, which made the discovery ineligible for a reward.

According to Jinu, the vulnerability involved a lack of validation when creating AgentTokens based on the internal bond threshold. If exploited, it could have prevented the generation of AgentTokens until the contract was patched. Jinu also noticed that Virtuals Protocol initially closed its dedicated Discord group for reporting the issue, which caused people to share the bug on the social media platform X.

After the public revelation, Virtuals Protocol quickly issued a fix and contacted Jinu to acknowledge the vulnerability. The company thanked the researcher for reporting the issue and apologized for earlier miscommunication. Virtuals Protocol representatives also assured Jinu that they would review the severity of the bug and issue a bounty.

While the fix was implemented quickly, the company has not determined the reward for Jinu’s efforts just yet. Jinu initially reviewed the code out of curiosity after a friend invested in a token created on Virtuals Protocol. They spent only about 30 minutes examining the code before identifying the issue.