Do Kwon pleaded guilty to fraud charges for deceiving investors in Terraform’s crypto system.

Kwon misrepresented Terraform’s products, including TerraUSD and Luna, to mislead investors.

Terraform Labs co-founder face up to 25 years in prison with sentencing scheduled for December 11.

Do Kwon, co-founder of Terraform Labs, has changed his plea from not guilty to guilty on two charges of conspiracy to defraud and wire fraud. Kwon admitted to misleading investors on the stability of his cryptocurrency projects, TerraUSD (UST) and Luna. 

TerraUSD (UST) and Luna collapsed in 2022, resulting in $40 billion in losses. The plea was announced on Tuesday during a court hearing in New York before U.S. District Judge Paul Engelmayer. 

The Collapse of TerraUSD and Luna: What Went Wrong?

According to the regulators, Kwon built Terraform lab’s financial system using deceptive practices to mislead investors, users and regulators. In May 2022, TerraUSD, an algorithmic stablecoin that maintains a 1:1 peg to the U.S. dollar, lost its value, triggering a financial collapse. 

Kwon had falsely claimed that an algorithm, “Terra Protocol,” restored the stablecoin’s peg after it broke. However, prosecutors claim that Kwon secretly orchestrated the purchase of millions of dollars’ worth of tokens to inflate the value of TerraUSD and Luna.

Source: US Justice.gov

These resulted in Luna’s price rising to over $50 billion in early 2022. After the algorithm failed, the tokens entered a death spiral, losing their value of about $40 billion and triggering the collapse of several other cryptocurrency firms. 

Kwon’s whereabouts had been largely unknown following the 2022 collapse of TerraUSD and Luna, until his arrest in Montenegro for using a fake passport. The co-founder and Terraform’s former CFO were caught attempting to board a private jet bound for Dubai. He spent four months in prison before both the US and South Korean authorities petitioned Montenegro for his extradition. However, the extradition process was delayed.

In addition to the U.S case, Kwon is still facing other charges in South Korea, his home country. South Korean prosecutors have accused Kwon of being involved in the chain of incidents that caused the collapse of TerraUSD and Luna. 

Also Read | Terraform Labs Opens Crypto Claims Portal for Bankruptcy Creditors

Legal Penalties for Terraform Labs’ Do Kwon in Crypto Fraud Case

Kwon is facing charges of securities fraud, wire fraud and market manipulation. Under the plea agreement,  he faces a maximum of 25 years in prison if the charges are served consecutively. According to the regulators, Kwon is required to pay a civil fine of $19 million and his sentencing hearing has been set for December 11.

Previously, Terraform Labs reached a $4.5 billion civil fraud settlement with the US Securities and Exchange Commission (SEC). Under the agreement, Kwon was fined $80 million and prohibited from engaging in crypto transactions.

Also, the case adds to the regulatory crackdown on crypto-related fraud. Kwon’s case follows the conviction of Roman Storm, co-founder of the cryptocurrency mixer Tornado Cash. Last week, Storm was convicted of operating a money laundering business that moved more than $1 billion in illicit funds. 

Despite the conviction, Tornado Cash remains operational. In addition, the U.S. Treasury Department lifted economic sanctions on the group following a campaign partially funded by the US cryptocurrency exchange Coinbase.

Also Read | Ethereum Foundation to Match $500,000 for Roman Storm Legal Defense

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Filed under: Bitcoin - @ August 13, 2025 12:21 am