Do Kwon, the man behind $40 bn cryptocrash, pleads guilty to fraud

Do Kwon, the South Korean cryptocurrency entrepreneur whose stablecoin empire imploded in 2022, pleaded guilty Tuesday (August 12) to two US counts of conspiracy to defraud and wire fraud.

Kwon, 33, co-founded Terraform Labs in Singapore and built the TerraUSD and Luna tokens, a pairing that once carried a market value north of $50 billion. At a hearing in Manhattan federal court, he admitted lying to investors about how his supposedly stable digital dollar kept its $1 peg.

“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,” Kwon told Judge Paul Engelmayer. “What I did was wrong.”

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The plea deal with the US attorney’s office drops other charges, including securities fraud and money laundering conspiracy, from a nine-count indictment. Prosecutors will recommend no more than 12 years in prison if Kwon accepts full responsibility. Sentencing is set for December 11. He faces a statutory maximum of 25 years.

Back in 2021, when TerraUSD slipped off its peg, Kwon told the world a computer algorithm had fixed it. In reality, prosecutors say, he orchestrated a secret rescue by a high-frequency trading firm that bought millions of dollars’ worth of the token. The false narrative, they allege, lured more investors into Terraform’s products and sent Luna soaring before the crash wiped out roughly $40 billion.

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Manhattan US Attorney Jay Clayton called it “one of the largest frauds in history,” driven by the hype of blockchain technology and speculative mania.

Kwon has been in custody since his extradition from Montenegro last year. He also faces criminal charges in South Korea. The plea agreement allows him to seek transfer abroad after serving half his US sentence, if prosecutors do not object.

In a separate case, he and Terraform agreed in 2024 to pay $80 million in civil penalties and accept a ban from crypto transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission.

The 2022 crypto crash swept away several high-profile firms. Kwon’s fall from a darling of the blockchain scene to a jailed defendant stands as one of its most spectacular collapses.

With inputs from Reuters