Do Kwon, the co-founder and former CEO of Terraform Labs, has admitted guilt to fraud charges in connection with the $40 billion collapse of the TerraUSD and Luna cryptocurrencies. Kwon, once hailed as a "cryptocurrency king," entered the plea in a Manhattan federal court, marking a significant turn in the legal saga following the 2022 crypto market crash.
Kwon's Terraform Labs created TerraUSD, a "stablecoin" that was supposed to be pegged to the U.S. dollar, and Luna, a floating crypto coin. However, in May 2022, TerraUSD plummeted far below its $1 peg, leading to a catastrophic collapse that erased approximately $40 billion in market value for holders of both TerraUSD and Luna. This collapse sent shockwaves through the cryptocurrency market, causing significant losses for investors worldwide.
The U.S. Attorney for the Southern District of New York, Jay Clayton, stated that Kwon attracted tens of billions of dollars to Terraform's ecosystem by promising a self-stabilizing stablecoin. However, the system proved unstable, leading to the collapse and substantial investor losses.
Kwon pleaded guilty to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud, and one count of committing wire fraud. As part of the plea agreement, he agreed to forfeit over $19 million in proceeds from his illegal schemes, including his stake in Terraform and its cryptocurrencies.
Initially, Kwon faced nine charges, including securities fraud, wire fraud, commodities fraud, and money laundering conspiracy. Although he could face a maximum sentence of 25 years in prison, the government will seek no more than 12 years, provided he complies with the terms of the plea deal. Sentencing is scheduled for December 11, 2025.
After the May 2022 crash, Kwon allegedly distributed a misleading "third party audit" report to conceal his crimes and attempted to launder the fraud proceeds through various blockchains, cryptocurrency exchanges, and a Swiss bank account. In March 2023, he was apprehended in Europe while using a fraudulent passport. Following months of legal battles, Kwon was extradited from Montenegro to the United States on December 31, 2024.
Prosecutors stated that Kwon misrepresented the effectiveness of the Terra protocol and concealed the role of a high-frequency trading firm in restoring TerraUSD's peg to investors. He falsely claimed that the Terra blockchain was used to process billions in financial transactions for Chai, a Korean payment app when, in reality, Chai processed transactions through traditional financial networks.
U.S. Attorney Jay Clayton emphasized that Kwon used the allure of cryptocurrency to perpetrate one of the largest frauds in history. Kwon's lawyer, Sean Hecker, stated that his client accepts responsibility for making false and misleading statements to cryptocurrency buyers.
The case highlights the Justice Department's commitment to pursuing criminals involved in cryptocurrency fraud, regardless of their location. The extradition of Do Kwon from Montenegro exemplifies the increasing international cooperation in cryptocurrency enforcement.
