Do Kwon to Plead Guilty in $40 Billion Terra Collapse Fraud Case

Do Kwon, co-founder of the now-defunct Terraform Labs, is expected to plead guilty in a U.S. federal court to charges related to a $40 billion fraud case linked to the collapse of TerraUSD (UST) and its sister token, Luna, in 2022 [1]. This development follows allegations that Kwon misrepresented the mechanisms used to stabilize TerraUSD, misleading investors and inflating the value of the ecosystem’s tokens.

The case centers on claims that Kwon orchestrated a “secret bailout” of TerraUSD when it fell below its $1 peg in May 2021. Prosecutors argue that Kwon falsely attributed the stablecoin’s recovery to an algorithm called the “Terra Protocol,” while in reality, he arranged for a high-frequency trading firm to artificially prop up TerraUSD’s value through undisclosed market interventions [1]. These actions, authorities allege, led to increased investor confidence and purchasing, pushing Luna’s market capitalization to nearly $50 billion before the collapse.

Kwon’s guilty plea, confirmed by U.S. District Judge Paul Engelmayer during a hearing on August 12, marks a significant shift in his legal strategy. He had previously pleaded not guilty to a nine-count indictment in January 2024. The plea deal is expected to reduce his potential prison sentence in exchange for full cooperation with the investigation [1].

Separately, in 2024, Kwon and Terraform Labs agreed to a $4.55 billion settlement with the U.S. Securities and Exchange Commission (SEC) and accepted a permanent ban from participating in crypto transactions. The civil case had alleged that Terraform Labs misrepresented the functionality and stability of TerraUSD, leading to catastrophic losses when the stablecoin and Luna collapsed [1].

Kwon has been in U.S. custody since his extradition from Montenegro in late 2023. He was detained there for using forged travel documents and served a brief sentence before being transferred to the U.S. for trial [1].

The plea hearing will involve a detailed discussion between Kwon and Judge Engelmayer to ensure that the defendant fully understands the charges and the legal consequences of his plea. The outcome of this process may shape future regulatory responses to crypto-related fraud and reinforce the importance of transparency and accountability in decentralized finance projects.

Source:

[1] Do Kwon Set to Plead Guilty in $40 Billion Fraud Case After “Secret Bailout” Allegations Surface (https://coinedition.com/do-kwon-set-to-plead-guilty-in-40-billion-fraud-case-after-secret-bailout-allegations-surface/)

[2] Analyst: $1000 Is the "Floor Price" for a Bridge Asset XRP (https://coinedition.com/global-bridge-asset-the-one-thesis-that-could-send-xrp-to-four-digit-prices/)