by Enoch Mwathwa
Do Kwon has pleaded guilty in a $40 billion crypto fraud case linked to Terraform Labs. The former CEO now faces sentencing after admitting to conspiracy and wire fraud charges related to the collapse of TerraUSD and Luna.
Do Kwon Pleads Guilty in Federal Court
Do Kwon appeared in federal court wearing an orange jumpsuit. He admitted to making false and misleading statements during the TerraUSD collapse in May 2021. Prosecutors said Kwon secretly directed a high-frequency trading firm to purchase large amounts of TerraUSD. This action restored the coin’s peg to the US dollar temporarily.
The 33-year-old founder confirmed his understanding of the charges before Judge Paul Engelmayer. Court documents show he could face up to 25 years in prison. However, under a plea agreement, prosecutors will recommend a sentence not exceeding 12 years if he meets the agreement’s conditions.
Details of the TerraUSD and Luna Collapses
TerraUSD was designed as an algorithmic stablecoin pegged to the US dollar. When the peg broke in May 2021, Kwon publicly claimed the protocol had stabilized it. Investigations later revealed a covert bailout funded by the trading firm. This bailout temporarily restored investor confidence, which boosted the value of Luna to $50 billion by 2022.
Prosecutors allege Kwon concealed the stablecoin’s fragility from users of the Terra ecosystem. These included Chai payments and Mirror Protocol. His actions misled investors and contributed to one of the largest losses in cryptocurrency history.
Financial Penalties and Restitution
Under the plea deal, Kwon has agreed to forfeit more than $19 million. He also faces potential restitution orders to compensate victims. Earlier this year, he and Terraform Labs reached a $4.55 billion settlement with the U.S. Securities and Exchange Commission. This included an $80 million personal fine and a lifetime ban from the cryptocurrency industry.
Court records indicate the plea deal does not affect separate criminal charges pending in South Korea. Authorities there may request his extradition after U.S. proceedings conclude.
Industry and Regulatory Context
Kwon’s guilty plea occurs while the world regulators take action to tighten control over the crypto industry. Law attorneys estimate that the case may be used as a precedent in convicting fraud related to algorithmic stablecoins.
As per the official complaint of the SEC, Terraform Labs lied about the stability and security of the TerraUSD. Various regulatory jurisdictions are now monitoring this case. Circle, Binance, and other industry players have referenced the incident in discussions on stablecoin regulation.
Sentencing is scheduled for December. The court will review Kwon’s cooperation with prosecutors before determining the final sentence.
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