The plea agreement avoids a lengthy trial, significantly reducing the sentence
Terraform Labs co-founder Do Kwon pleaded guilty on the 12th at the New York Southern District Federal Court before Judge Paul Engelmayer, admitting to two felony charges of conspiracy to commit fraud and wire fraud. The 33-year-old South Korean entrepreneur appeared in court in a yellow jumpsuit and handcuffs, officially concluding years of legal defense.
According to the plea agreement, among the nine criminal charges originally faced by Do Kwon, prosecutors agreed to only proceed with two counts. By statutory maximum sentence calculations, Do Kwon could face up to 25 years in prison, but under the plea agreement, prosecutors promised to recommend a sentence not exceeding 12 years. Judge Engelmayer emphasized that he is not bound by the prosecution's recommendation, and the final sentence will be determined at the sentencing hearing on December 11.
Do Kwon stated in court: "From 2018 to 2022, I knowingly agreed to participate in a fraudulent scheme, indeed defrauding the purchasers of my company Terraform Labs' cryptocurrency. I made false and misleading statements about how to restore the peg and did not disclose the trading company's role in the restoration process. What I did was wrong, and I want to apologize for my actions."
$40 billion collapse case shocks the cryptocurrency market
Prosecutors accused Do Kwon of misleading investors in 2021, claiming that the TerraUSD stablecoin ($UST) restored its 1:1 peg to the dollar through automated protocols, but in reality, it was artificially manipulated through secret agreements with high-frequency trading firms. This false advertising encouraged more investors to enter, causing the associated token $LUNA's market value to peak at $50 billion in April 2022.
In May 2022, the TerraUSD stablecoin lost its peg to the dollar, leading to the collapse of the entire Terra ecosystem, with investors losing an estimated $40 billion. This disaster triggered a chain reaction in the cryptocurrency market, leading to the bankruptcy of several digital asset companies, including lending service providers BlockFi and Genesis. Bitcoin's price fell below $16,000 at one point, down nearly 80% from its peak in 2021.
After the Terra collapse, Do Kwon's whereabouts were a mystery for nearly a year, until his arrest in March 2023 in Montenegro for using forged travel documents. After serving four months locally, he was extradited to the United States in January of this year after a complex extradition process and has been detained since.
Significant fines alongside civil settlements
According to the terms of the plea agreement, Do Kwon must pay more than $19.28 million in fines and interest, and forfeit "a significant amount" of property. The agreement also stipulates that after serving half of his sentence, the Justice Department will support his motion for international prisoner transfer, meaning he may complete the remainder of his sentence in South Korea.
In addition to the criminal case, Do Kwon and Terraform Labs reached a $4.55 billion civil settlement with the U.S. Securities and Exchange Commission (SEC) in 2024. As part of the settlement, Do Kwon agreed to pay an $80 million civil fine and accepted a ban on participating in cryptocurrency-related trading.
It is worth noting that Do Kwon still faces criminal charges in South Korea. His lawyer stated that the related cases are still ongoing. New York prosecutors indicated they would not oppose Do Kwon's request to serve his sentence in South Korea after completing half of his term in the United States.
Further reading
Investors lost $40 billion! LUNA founder initially pleaded not guilty, but may change his plea this week?
Finally caught! Do Kwon was arrested in Montenegro, claiming "I am not on the run"
Sentencing trends in cryptocurrency fraud cases
Do Kwon's guilty plea symbolizes the end of one of the largest fraud cases in cryptocurrency history. Compared to other cryptocurrency executives' sentences, Do Kwon's is relatively light. Former FTX CEO SBF was sentenced to 25 years in prison in 2024, and Tornado Cash co-founder Roman Storm was recently convicted.
Terra collapse investigation's notable figure FatMan commented: "Do Kwon's guilty plea means he is likely to serve 15 to 20 years instead of the statutory maximum of 25 years. The prosecution will recommend 12 years. This is a kind of vindication after years of effort, but there is no doubt that Do Kwon has also become a scapegoat for Jump Crypto and former president Kanav Kariya."
Image source: X/@FatManTerra FatMan believes Do Kwon has become a scapegoat for Jump Crypto and former president Kanav Kariya
This case highlights the regulatory crackdown on cryptocurrency fraud and sets a precedent for other cryptocurrency executives facing similar charges. As the traditional financial regulatory framework gradually applies to the digital asset industry, the industry expects more similar enforcement actions in the future.
'Causing LUNA investors to suffer huge losses! Terra founder pleads guilty, facing up to 12 years in prison and a $19 million fine' This article was originally published in 'Crypto City'
