Do Kwon to Change Plea in $40 Billion TerraUSD Collapse Case

Do Kwon, co-founder of Terraform Labs, is set to change his plea in a U.S. federal court in Manhattan on August 12, 2025, in a high-profile case involving the $40 billion collapse of the algorithmic stablecoin TerraUSD (UST) in May 2022. In January 2025, Kwon pleaded not guilty to all charges; now, he is expected to offer a different stance. The nine-count indictment includes conspiracy to defraud, commodities and securities fraud, wire fraud, market manipulation, and money laundering [1].

The U.S. Department of Justice alleges that Kwon misrepresented the stability of the UST system, which was designed to maintain a $1 peg through a mechanism tied to the Luna token. The collapse of the system in May 2022 led to a catastrophic drop in Luna’s value—from over $120 to near zero—causing massive financial losses for investors and contributing to a broader market downturn. A 2023 study in the Journal of Financial Stability noted that the Terra collapse led to a 15% decline across the crypto industry, highlighting the risks of unregulated and opaque financial structures [3].

Kwon became a fugitive for several months after the crash before being arrested in Montenegro on charges of using forged travel documents. He was extradited to the U.S. in December 2024 and has been held in custody without bail since his January 2025 not guilty plea. U.S. prosecutors and Kwon’s defense have been in active negotiations, and the plea change could indicate a potential resolution to the case [2].

Judge Paul Engelmayer has mandated that Kwon submit a full defense narrative covering all aspects of the charges prior to the plea hearing. This procedural step aims to ensure clarity and transparency in the legal process. The plea change also follows the recent conviction of Tornado Cash co-founder Roman Storm in the same court, signaling a broader federal crackdown on cryptocurrency-related crimes [5].

The market’s response has been muted, with LUNA trading at $0.00008, reflecting a roughly 1% decline in the past 24 hours. Analysts suggest that while a guilty plea might bring legal clarity, it could also be perceived as an admission of wrongdoing, potentially dampening investor sentiment [2].

The criminal case is distinct from a civil action brought by the U.S. Securities and Exchange Commission, which was resolved in 2024 with a $4.5 billion settlement from Terraform Labs. Additionally, in April 2025, South Korean courts found Kwon and Terraform Labs liable in a civil case, resulting in a $4.47 billion settlement and the company’s dissolution [4].

Kwon’s expected plea change could significantly alter the trajectory of the Terra collapse case and influence ongoing legal proceedings in both the U.S. and South Korea. It also highlights the growing complexity of cross-border cryptocurrency enforcement. A 2024 report by the U.S. SEC noted a 30% increase in such cases since 2020, underscoring the global challenge of regulating digital assets [5].

The TerraUSD collapse is widely viewed as a turning point in the crypto industry, reinforcing calls for stronger regulatory oversight and transparency. Kwon’s plea shift marks a critical legal development, challenging the perception of crypto as a self-regulating market and emphasizing the importance of accountability in financial innovation [6].

Sources:

[1] https://www.ccn.com/news/crypto/do-kwon-set-to-change-plea-in-40b-terrausd-collapse-case/

[2] https://www.ainvest.com/news/kwon-plead-guilty-terra-stablecoin-fraud-case-2508/

[3] https://www.mexc.com/news/luna-and-lunc-on-the-edge-as-do-kwon-eyes-guilty-plea-in-40b-terraform-case/64793

[4] https://www.cryptopolitan.com/kwon-set-for-guilty-plea-in-fraud-case/

[5] https://www.ainvest.com/news/kwon-plead-guilty-terraform-fraud-case-2508/

[6] https://cryptoslate.com/terraform-labs-co-founder-do-kwon-set-to-plead-guilty-on-august-12-in-40-billion-fraud-case/