In a stunning reversal, South Korean cryptocurrency mogul Do Kwon, the central figure behind the infamous $40 billion collapse of the TerraUSD and Luna currencies, has pleaded guilty in a Manhattan federal court to two counts of fraud. The plea marks a dramatic conclusion to a saga that began with the charismatic “crypto king” on the run and ended with him accepting responsibility for what prosecutors have called “one of the largest frauds in history.”
Kwon, 33, the co-founder of Terraform Labs, admitted to one count of conspiracy to commit commodities fraud, securities fraud, and wire fraud, and a second count of wire fraud. As part of a plea deal with the U.S. Attorney’s Office for the Southern District of New York, Kwon has agreed to forfeit more than $19 million in ill-gotten gains and will lose his interest in Terraform and its cryptocurrencies.
The plea is a significant departure from his previous stance of not guilty and comes after a jury in a civil case had already found him liable for misleading investors. In court, Kwon admitted to his wrongdoing, stating, “I made false and misleading statements about why it regained its peg by failing to disclose a trading firm’s role in restoring that peg. What I did was wrong.”
The collapse of the Terra ecosystem in May 2022 sent shockwaves through the crypto world, wiping out an estimated $40 billion in market value and triggering a broader “crypto winter” that led to the bankruptcies of several major firms. The core of the fraud, according to prosecutors, was Kwon’s misrepresentation of the stability of TerraUSD, a so-called “algorithmic stablecoin” that was supposed to maintain a 1:1 peg to the U.S. dollar through a complex system of code and its floating sister currency, Luna.
The system, as the market discovered, was not stable. When TerraUSD began to de-peg, Kwon and Terraform Labs secretly arranged for a third-party trading firm to purchase large amounts of the token to artificially prop up its price. Kwon then lied to investors, claiming that the system’s own algorithm had restored the peg, a false assurance that led more retail and institutional investors to pour their money into the failing ecosystem.
Kwon’s legal troubles are not over. While his plea deal in the U.S. will likely result in a reduced prison sentence—prosecutors have agreed to recommend a term of no more than 12 years, far below the maximum of 25—he still faces charges in his native South Korea. His extradition from Montenegro, where he was arrested in March 2023 for traveling on a false passport, was a key moment in bringing him to justice.
For the countless investors around the world who lost their life savings in the crash, Kwon’s guilty plea is a form of vindication. The case is a powerful reminder that while the world of cryptocurrency may be a new frontier, the laws against fraud and deception remain very much in effect.