Do Kwon Pleads Guilty to Fraud in $40 Billion Terra Collapse

Do Kwon, co-founder of Terraform Labs, has formally entered a guilty plea on two federal fraud charges related to the 2022 collapse of the Terra and LUNA cryptocurrency ecosystem, which caused an estimated $40 billion in investor losses. The plea, confirmed in early August 2025, reduces the original nine-count indictment to two charges: conspiracy to defraud and wire fraud. Kwon acknowledged making false and misleading statements about the operations of Terraform Labs and the stability of its algorithmic stablecoin system [1].

The guilty plea was entered before Judge Paul Engelmayer in the U.S. District Court for the Southern District of New York (SDNY). Kwon accepted responsibility for his role in the fraud, acknowledging that the scheme involved ongoing manipulation to sustain the peg of the TerraUSD stablecoin. He also admitted to knowingly making false statements to investors regarding the operations and stability of the Terra ecosystem [2].

Under the terms of the plea agreement, Kwon faces a potential 12-year prison sentence if he continues to cooperate with prosecutors and avoids additional legal violations. While the statutory maximum sentence for the charges is 25 years—split between five years for conspiracy and 20 years for wire fraud—prosecutors have agreed to cap the recommendation at 12 years. The final sentencing is scheduled for December 11, 2025, when Judge Engelmayer will determine the appropriate punishment [3].

Kwon’s legal troubles began in March 2023, when he was arrested in Montenegro on suspicion of using fraudulent travel documents. After nearly four months in Montenegrin custody, he was extradited to the United States in January 2025. Prior to the guilty plea, he had pleaded not guilty to the charges and had fought extradition. His legal team had previously argued for leniency, citing his cooperation with investigations and efforts to return to the U.S. voluntarily [4].

The plea deal also includes a financial penalty of $19 million, which Kwon has agreed to pay as part of the settlement with U.S. prosecutors. This amount is separate from any potential restitution owed to victims of the Terra collapse. In addition to the U.S. charges, Kwon still faces criminal investigations in South Korea, where authorities have also pursued legal action against him [5].

The Terra collapse had a significant impact on the broader cryptocurrency market, triggering widespread sell-offs and raising concerns about the stability of algorithmic stablecoins. Prosecutors have argued that Terraform’s products were structurally unsound and required constant manipulation to maintain their value, which ultimately led to the catastrophic failure in May 2022 [6].

Kwon’s case has drawn comparisons to that of former FTX CEO Sam Bankman-Fried, who was sentenced to 25 years in prison in 2024 for similar charges. Observers note that Kwon’s guilty plea may reflect a strategic decision to avoid a potentially longer sentence in a judicial system that has demonstrated limited leniency toward high-profile crypto fraud cases [7].

The outcome of Kwon’s sentencing is expected to have broader implications for the cryptocurrency industry, signaling to market participants the legal and regulatory risks associated with fraudulent or misleading business practices. His guilty plea and the potential 12-year sentence will serve as a precedent for how the justice system handles crypto-related financial crimes [8].

Source: [1] Do Kwon pleads guilty to US fraud charges in $40 billion ... (https://www.reuters.com/legal/government/do-kwon-pleads-guilty-us-fraud-charges-40-billion-crypto-collapse-2025-08-12/)

[2] Do Kwon Pleads Guilty on two Charges, Faces Potential 12 ... (https://m.fastbull.com/news-detail/do-kwon-pleads-guilty-on-two-charges-faces-4339376_0)

[3] 'Cryptocrash king' Do Kwon pleads guilty to fraud (https://ca.finance.yahoo.com/news/cryptocrash-king-kwon-pleads-guilty-000513398.html)

[4] Do Kwon's Guilty Plea In US Fraud Case Sets Stage For 25 ... (https://www.mitrade.com/au/insights/news/live-news/article-3-1034959-20250813)

[5] Do Kwon pleads guilty on two charges, faces potential 12 ... (https://cryptoslate.com/do-kwon-pleads-guilty-on-two-charges-faces-potential-12-year-sentence/)