Terraform Labs co-founder Do Kwon pleaded guilty to two charges of 'conspiracy to commit fraud' and 'telecommunications fraud' in the U.S. District Court for the Southern District of New York, ending a years-long criminal lawsuit. This case stems from the collapse of the algorithmic stablecoin TerraUSD (UST) and its associated governance token Luna in 2022, which resulted in hundreds of billions of dollars in market value evaporating and triggered a chain collapse throughout the cryptocurrency market.
According to reports from Reuters and Inner City Press, Do Kwon stated in court that he would waive his right to a trial and acknowledged that he could face a maximum of 25 years in prison—20 years for 'telecommunications fraud' and 5 years for 'conspiracy to commit fraud.'
In the previous indictment, he was facing multiple charges including fraud, commodity fraud, securities fraud, market manipulation, and money laundering, with a maximum sentence of up to 135 years if all were convicted.
The U.S. prosecutors pointed out that according to the plea agreement, Do Kwon must pay a maximum of $19.28 million (plus interest) in forfeited funds, hand over a substantial amount of real estate, and pay restitution. He agreed not to contest the factual statements in the indictment. In exchange, the U.S. Department of Justice (DOJ) would recommend a maximum sentence of 12 years, and support his application for international transfer after serving half of his sentence. However, Judge Paul Engelmayer emphasized that he is not bound by the prosecutors' recommended sentence, meaning he could ultimately impose a longer sentence.
In a prepared statement, Do Kwon admitted that he conspired with others to defraud UST investors between 2018 and 2022 in South Korea, New York's Southern District, and other regions, using international and interstate telecommunications systems to commit fraud. He admitted that in 2021 he made false statements to mislead the public about why UST could be re-pegged to the dollar, which was actually related to the intervention of a trading company. He stated in his statement: 'What I did was wrong, and I apologize for my actions.'
The design of UST relied on a dual-token mechanism with the governance token Luna and algorithms to maintain price stability, but after the collapse in 2022, it triggered market panic and liquidity crises, leading to the bankruptcy of multiple cryptocurrency companies. Before the collapse, Do Kwon had repeatedly supported UST on social media, even saying phrases like 'Have fun staying poor' and 'Steady lads.'
In addition to the criminal case, Do Kwon and Terraform Labs also face a civil fraud lawsuit filed by the U.S. Securities and Exchange Commission (SEC) in February 2023. In April of this year, a jury found that both had indeed made false and misleading statements to investors during the sale and purchase of Terraform securities, violating federal securities laws and are liable for civil fraud.
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