Do Kwon Pleads Guilty to $40 Billion Terra Collapse Fraud

Do Kwon, co-founder of Terraform Labs, has officially pleaded guilty in a U.S. federal court to two counts of fraud related to the 2022 collapse of the TerraUSD and Luna stablecoin projects, which collectively lost an estimated $40 billion in value. The admission came after a prolonged legal battle and was confirmed during a court hearing before U.S. District Judge Paul Engelmayer. By pleading guilty, Kwon avoided a trial that had been scheduled for January 2026 and accepted the factual allegations detailed in the indictment without challenge [1].

The plea agreement includes charges of conspiracy to defraud and wire fraud, both of which stem from Kwon’s alleged misrepresentations to investors regarding TerraUSD’s financial stability and its peg to the U.S. dollar. Prosecutors allege that Kwon concealed the fact that the stablecoin’s value was being artificially maintained through a secret deal with a high-frequency trading firm. This concealment, according to the charges, misled investors and fueled the rapid growth of Luna’s market capitalization to over $50 billion before its subsequent collapse [2].

Under the plea terms, Kwon is subject to a maximum prison sentence of 25 years. However, if he accepts responsibility and refrains from committing further crimes, prosecutors have agreed to advocate for a term not exceeding 12 years. U.S. Attorney Ravener emphasized that Kwon would be unable to appeal any sentence of 25 years or less. A sentencing hearing has yet to be scheduled, but the agreement effectively concludes the criminal aspect of the case, leaving the door open for potential civil proceedings [3].

Kwon’s guilty plea also includes financial penalties, such as the forfeiture of over $19 million and several properties. Separately, in 2024, he had already agreed to a $4.55 billion civil settlement with the U.S. Securities and Exchange Commission (SEC), which included a $80 million civil fine and a permanent ban on engaging in cryptocurrency transactions. This settlement was part of broader efforts to address the damage caused by the TerraUSD and Luna collapse [4].

The collapse of TerraUSD and Luna in May 2022 was one of the most significant financial failures in the crypto industry. TerraUSD, designed to maintain a $1 peg, lost its value rapidly, triggering a cascading failure that saw Luna’s value drop to near zero. The event not only devastated individual investors but also led to widespread contagion effects across the broader crypto market and increased regulatory scrutiny globally [5].

Kwon’s legal troubles extend beyond the U.S., with prior extradition from Montenegro after serving time for document forgery. The guilty plea marks a definitive end to his defense and highlights the U.S. government’s resolve in prosecuting large-scale crypto fraud. Analyst James Seyffart from Bloomberg noted that the plea ensures the case will not proceed to trial, ending years of legal speculation and maneuvering [6].

For the millions of investors who lost billions, the guilty plea offers no financial redress but may provide a sense of justice. The event remains a cautionary tale for the crypto industry, underscoring the volatility and risks associated with algorithmic stablecoins and the urgent need for regulatory oversight. Kwon’s cooperation may also influence future legal actions against Terraform Labs and its affiliates, though the extent of those implications remains unclear.

Source:

[1] [Do Kwon pleads guilty in crypto case](https://www.linkedin.com/news/story/do-kwon-pleads-guilty-in-crypto-case-6488124/)

[2] [Do Kwon Pleads Guilty to Fraud Over $40 Billion Terra ...](https://www.bloomberg.com/news/articles/2025-08-12/kwon-says-he-will-plead-guilty-to-charges-tied-to-terra-collapse)

[3] [Do Kwon pleads guilty to defrauding crypto investors in ...](https://cryptobriefing.com/terra-collapse-fraud-do-kwon/)

[4] [Do Kwon Gets 12 Years, $19M Fine After Pleading Guilty to ...](https://cryptonews.com/news/do-kwon-pleads-guilty-to-fraud-accepts-12-year-sentence-19m-fine-is-justice-served-for-terra-investors/)

[5] [Do Kwon to Plead Guilty to Fraud and Wire Fraud in $40B ...](https://blockchain.news/flashnews/do-kwon-to-plead-guilty-to-fraud-and-wire-fraud-in-40b-crypto-collapse-u-s-judge-says-what-traders-need-to-know)