Do Kwon pleads guilty to fraud: I deceived investors who bought UST/LUNA, I’m very sorry...I hope to get a substantial reduction in sentence
Terraform Labs founder Do Kwon pleaded guilty in a New York court, and the $40 billion Terra/Luna collapse case will enter the sentencing process.
(Preliminary summary: Do Kwon will plead guilty! LUNA was charged with nine criminal felonies including fraud and money laundering after his collapse)
(Background supplement: Finally? Montenegro’s Ministry of Justice ordered Do Kwon to be extradited to the United States, and the Terra founder’s dream of returning to South Korea was shattered)
Contents of this article
Do Kwon, co-founder of Terra/Luna, who was once dubbed the "King of Cryptocurrency" by the outside world, Eastern Time On the 12th, he pleaded guilty in a New York federal court to nine original criminal charges of conspiracy to commit fraud and wire fraud. This historical incident in the cryptocurrency industry, which caused investment losses of US$40 billion, has finally come to an end.
Do Kwon faces nine criminal charges including securities fraud, wire fraud, commodities fraud and money laundering conspiracy. If convicted on all counts, he faces up to 135 years in prison.
Outlines of the plea agreement
According to Reuters, prosecutors reached an agreement with Kwon that recommended a prison term of no more than 12 years, well below the maximum 25-year limit for both counts. Kwon also agreed to disgorge approximately $19.3 million in ill-gotten gains.
Do Kwon, handcuffed and wearing a canary-yellow prison uniform, reportedly admitted in court:
“Between 2018 and 2022, I knowingly conspired with others in a scheme to defraud and committed fraud against my company, Terraform, in the Southern District of New York and elsewhere. The purchaser of the cryptocurrency issued by Labs...did something wrong, and I want to apologize for my actions." After pleading guilty, his sentencing hearing is scheduled for December 11 this year, and the judge may still consider aggravating or mitigating circumstances.
The Collapse of the Stablecoin Illusion
At its peak, the algorithmic stablecoin TerraUSD (UST) relied on the dynamic destruction and minting mechanism of the token Luna to allow its market value to exceed US$50 billion. Kwon testified in court that after the first decoupling in 2021, he secretly bought orders through a high-frequency trading company to create the illusion of "automatic recovery" and thereby attract new funds.
Until May 2022, continuous selling pressure caused prices to spiral out of control, and UST and Luna quickly returned to zero, causing the bankruptcy of many lending and hedging institutions and indirectly worsening the subsequent FTX crisis.
Global Manhunt and Judicial Cooperation
After the collapse, Kwon chose to abscond, and Interpol issued a red notice. After months of tracking, the United States identified him through the Montenegro (Republic of Montenegro) police and completed his extradition to the United States at the end of 2024.
Previously, the SEC had reached a $4.55 billion civil settlement with Terraform Labs in June 2024, with Kwon personally paying $80 million.
The New Normal of Supervision
CoinDesk analysis pointed out that this case will push countries to strengthen the disclosure of stable currency reserves and conduct stress tests on algorithmic mechanisms. Observers generally believe that the results will strengthen regulators’ definition of the responsibilities of stablecoin issuers and provide a precedent for subsequent reviews in the DeFi field. For other founders, the incident may highlight the concept of "ultimate liability": even if product design flaws are caused by algorithms, legal accountability cannot be ruled out.
Investors must also shift from the slogan "high yield means high risk" to evaluating cash flow, reserve assets and audit results. Otherwise, even if it is said to be too big to fail, the next mine explosion may still occur in the blink of an eye.
