Terraform Labs founder Do Kwon pleads guilty to fraud over $40 billion crypto collapse

Terraform Labs founder Do Kwon has pleaded guilty to two U.S. fraud charges, admitting his role in the collapse of a crypto empire that wiped out $40 billion in investments. Kwon’s dramatic story involves an immense cryptocurrency crash, an international manhunt by Interpol, and his eventual extradition from Montenegro to the United States.

Kwon was a central figure in the widespread crypto market downturn of 2022. His company, Terraform, introduced a “stablecoin” called TerraUSD, which was supposedly pegged to the US dollar, alongside a floating cryptocurrency named Luna. In May 2021, when TerraUSD dropped below its intended $1 peg, Kwon secretly arranged for a trading firm to buy the currency to inflate its price. He then falsely informed investors that the coin had been stabilized using a sophisticated algorithm.

Trusting Kwon’s deceptive claim, investors poured nearly $50 billion into Luna, which was closely linked to TerraUSD. Both currencies subsequently collapsed, leading to the loss of $40 billion of investor money. As is often the case in such financial disasters, many ordinary individuals lost their life savings, while some venture capital firms actually profited before the final crash.

Following the collapse, Kwon became a wanted man, with both U.S. and South Korean authorities issuing warrants. South Korean prosecutors even enlisted Interpol to track him down. Despite posting on X (formerly Twitter) that he “wasn’t on the run,” Kwon was apprehended and extradited to the U.S. on New Year’s Eve last year.

Kwon was initially charged with nine counts, including securities fraud, wire fraud, commodities fraud, and money-laundering conspiracy. While he faced up to 25 years in prison, he may receive a reduced sentence, potentially a maximum of 12 years, provided he accepts responsibility for his crimes. Kwon admitted, “I made false and misleading statements about why [TerraUSD] regained its peg by failing to disclose a trading firm’s role in restoring that peg. What I did was wrong.”

Earlier, Kwon agreed to pay an $80 million civil fine and be permanently banned from crypto transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission. Prosecutors have indicated that Kwon could be transferred to South Korea after serving half of his U.S. sentence.