From Denial to Admission: Do Kwon Changes Plea in TerraUSD Fraud Probe

Terraform Labs co-founder Do Kwon has pleaded guilty in a New York court to conspiracy and wire fraud charges linked to the $40 billion collapse of TerraUSD and Luna.

Do Kwon Admits Fraud in U.S. Court

Do Kwon, the co-founder of collapsed blockchain firm Terraform Labs, has pleaded guilty to U.S. fraud charges, marking a dramatic turn in the long-running legal fallout from the TerraUSD and Luna token collapse. The plea was entered before U.S. District Judge Paul Engelmayer in Manhattan on August 12.

Kwon, who was extradited from Montenegro earlier this year, admitted to charges of conspiracy to defraud and wire fraud. Under a plea agreement with the Manhattan U.S. Attorney’s Office, prosecutors will not seek a sentence exceeding 12 years. Sentencing is scheduled for December 11.

TerraUSD Collapse and Alleged Market Manipulation

Kwon co-created TerraUSD, an algorithmic stablecoin designed to maintain a one-to-one peg with the U.S. dollar, alongside the Luna cryptocurrency. In May 2021, TerraUSD lost its peg, wiping out approximately $40 billion in market value.

Prosecutors allege that Kwon misled investors by claiming that the “Terra Protocol” algorithm would restore the stablecoin’s value. Instead, they say he secretly enlisted a high-frequency trading firm to purchase large volumes of TerraUSD, artificially propping up its price. This intervention drove further investor confidence and boosted Luna’s valuation to around $50 billion by early 2022, before its eventual collapse.

Multi-Jurisdiction Legal Battle

The guilty plea follows a complex legal saga spanning multiple jurisdictions. After South Korea issued a warrant for his arrest in 2023, Kwon fled the country, eventually being detained in Montenegro for using falsified travel documents. He was later extradited to the United States to face a nine-count indictment, which included securities fraud, commodities fraud, and money laundering conspiracy.

Initially pleading not guilty in January, Kwon reversed his position as part of a negotiated settlement. In addition to the criminal case, he faces significant civil penalties, including an $80 million fine and a ban on participating in cryptocurrency transactions, under a $4.55 billion settlement with the U.S. Securities and Exchange Commission.

Regulatory Message

Todd Snyder, appointed to oversee Terraform Labs’ liquidation, described the plea as a critical step in reinforcing accountability within the digital asset industry. The case is among the most prominent prosecutions stemming from a cryptocurrency failure, underscoring heightened regulatory scrutiny of the sector.

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