Do Kwon’s guilty plea marks the dramatic conclusion of one of cryptocurrency’s most devastating fraud cases, ending a legal saga that began with the spectacular collapse of TerraUSD and Luna tokens. The South Korean entrepreneur’s admission of guilt represents a watershed moment for the crypto industry, demonstrating that even the most sophisticated digital asset schemes cannot escape justice when they defraud investors of billions.
Details of South Korean cryptocurrency entrepreneur Do Kwon’s guilty plea
Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion in 2022, pleaded guilty on Tuesday to two U.S. charges of conspiracy to defraud and wire fraud. His acceptance of a 12-year prison sentence and $19 million fine sends a powerful message to other crypto executives who might consider misleading investors about their projects’ stability and mechanisms.
Kwon, 33, who co-founded Singapore-based Terraform Labs and developed the TerraUSD and Luna currencies, entered the plea at a court hearing in New York before U.S. District Judge Paul Engelmayer.
He had pleaded not guilty in January to a nine-count indictment charging him with securities fraud, wire fraud, commodities fraud, and money laundering conspiracy.
Accused of misleading investors in 2021 about TerraUSD – a so-called stablecoin designed to maintain a value of $1 – Kwon pleaded guilty to the two counts under an agreement with the Manhattan U.S. Attorney’s office, which brought the charges.
Prosecution member U.S. Attorney Jay Clayton makes a statement
“Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history,” Manhattan U.S. Attorney Jay Clayton said in a statement.
He faces up to 25 years in prison when Engelmayer sentences him on December 11, though prosecutor Kimberly Ravener said the government had agreed to advocate for a prison term of no more than 12 years, provided he accepts responsibility for his crimes.
Kwon is one of several cryptocurrency moguls to face federal charges after a slump in digital token prices in 2022 prompted the collapse of several companies.
The mechanics of Do Kwon’s fraud
Prosecutors alleged that when TerraUSD slipped below its $1 peg in May 2021, he told investors a computer algorithm known as “Terra Protocol” had restored the coin’s value.
Instead, they said, he arranged for a high-frequency trading firm to secretly buy millions of dollars of the token to artificially prop up its price.
Prosecutors said that false claims and others drove retail and institutional investors to buy Terraform products and boost the value of Luna, a more traditional token that fluctuated in value but was closely linked to TerraUSD, to $50 billion by the spring of 2022.
“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 said. “What I did was wrong.”
Settlement and extradition: What’s next for Do Kwon?
Kwon agreed in 2024 to pay 80million as a civil fine and be banned from crypto transactions as part of a 4.55 billion settlement he and Terraform reached with the U.S. Securities and Exchange Commission.
Kwon has been detained since his extradition from Montenegro late last year.
He also faces charges in South Korea. As part of the deal, prosecutors will not oppose Kwon’s potential application to be transferred abroad after serving half his U.S. sentence, Ravener said.
Do Kwon’s guilty plea represents a defining moment for cryptocurrency regulation and investor protection, proving that even the most complex digital asset fraud schemes will face serious legal consequences. His 12-year sentence and $19 million fine establish a significant deterrent for other crypto executives who might consider misleading investors about their projects’ fundamental mechanisms.
The case demonstrates that U.S. authorities have developed sophisticated capabilities to investigate and prosecute cryptocurrency fraud, regardless of the technical complexity or international scope of the schemes. This landmark conviction will likely reshape how cryptocurrency companies approach transparency and investor communications, knowing that deceptive practices will ultimately face the full force of federal prosecution.
GCN.com/Reuters