Do Kwon Pleads Guilty to $40 Billion TerraUSD and Luna Fraud Scheme

Generated by AI AgentCoin World
Wednesday, Aug 13, 2025 2:34 pm ET2min read
LUNA
--
XRP
--
Aime RobotAime Summary

- Do Kwon, Terraform Labs founder, pleaded guilty to U.S. fraud charges over the $40B TerraUSD-Luna collapse, admitting to misleading investors about algorithmic stablecoin stability.

- The scheme involved centralizing control of platforms like Luna Foundation Guard while falsely promoting them as decentralized, triggering a 2022 market crash with global ripple effects.

- Kwon faces $19M forfeiture and sentencing on Dec 11, 2025, after fleeing to Montenegro in 2023, marking a landmark case for crypto accountability amid intensified regulatory scrutiny.

- The collapse exposed systemic risks in algorithmic stablecoins, prompting calls for stronger oversight and serving as a cautionary tale for investor due diligence in DeFi ecosystems.

Do Kwon, founder of Terraform Labs, has pleaded guilty to U.S. fraud charges tied to the collapse of the TerraUSD (UST) and

Luna
(LUNA) cryptocurrencies, which resulted in the loss of over $40 billion in investor assets [1]. The guilty plea, announced in a U.S. court, marks the end of a protracted legal saga involving international fugitive status, extradition, and extensive regulatory scrutiny. Kwon admitted to orchestrating a scheme that misrepresented the stability of TerraUSD, using algorithmic mechanisms to maintain its dollar peg, which ultimately failed in May 2022 [2].

Kwon faced two charges: conspiracy to defraud and wire fraud, both of which are federal offenses with severe legal consequences [3]. The charges stem from his alleged deception of investors and manipulation of market conditions to create the illusion of a stable, self-sustaining financial ecosystem. The UST and LUNA collapse had a significant

ripple
effect on the global crypto market, eroding trust and prompting intensified regulatory attention worldwide [4].

The case traces back to 2018, when Terraform Labs launched the

Terra
Protocol, which aimed to create algorithmic stablecoins, including UST. Marketing materials claimed UST could always be exchanged for $1 worth of LUNA, but this was later revealed to be false [5]. The company also launched several other platforms, such as the Mirror Protocol and the Luna Foundation Guard, which were promoted as decentralized but were found to be centrally controlled and manipulated [6].

At the height of its success, Terraform Labs attracted tens of billions of dollars in investments, with Kwon becoming one of the most prominent figures in the crypto space [7]. However, the instability of the system became evident in 2021 and culminated in the collapse in May 2022. Kwon fled the country and was arrested in Montenegro in late 2023 using a fake passport before being extradited to the U.S. [8].

As part of the plea agreement, Kwon will forfeit $19 million in proceeds from the fraudulent schemes and is scheduled to be sentenced on December 11, 2025 [9]. The guilty plea is expected to influence the sentencing outcome, though no official details have been released regarding restitution for victims. The case highlights the growing demand for transparency and accountability in the crypto sector, particularly concerning algorithmic stablecoins and decentralized finance (DeFi) projects.

The Terraform collapse has been widely regarded as one of the most significant financial disasters in crypto history. It serves as a cautionary example for investors to exercise due diligence and for regulators to strengthen oversight of emerging financial technologies [10]. The legal resolution of Kwon’s case is likely to set a precedent for future accountability in the cryptocurrency industry.

Source:

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

[2] TerraUSD: 'Cryptocrash king' Do Kwon pleads guilty to fraud (https://www.bbc.com/news/articles/c2kznpdvwwlo)

[3] South Korean crypto mogul Do Kwon pleads guilty to fraud (https://www.aljazeera.com/economy/2025/8/13/south-korean-crypto-mogul-do-kwon-pleads-guilty-to-fraud)

[4] Terraform Labs founder Do Kwon pleads guilty to fraud ... (https://www.engadget.com/general/terraform-labs-founder-do-kwon-pleads-guilty-to-fraud-over-40-billion-crypto-collapse-134009107.html)

[5] South Korean cryptocurrency mogul pleads guilty to fraud ... (https://apnews.com/article/do-kwon-terraform-court-montenegro-crypto-mogul-46d924b4d34e90b850889d711c93c802)

[6] Former Terraform CEO pleads guilty to fraud in massive crypto ... (https://www.upi.com/Top_News/US/2025/08/13/Do-Kwon-CEO-Terraform-Labs-crypto-blockchain-stablecoin-fraud-plead-guilty/8301755089474/)

[7] Do Kwon, Korean behind Terra-Luna crash, pleads guilty ... (https://www.koreaherald.com/article/10553384)

[8] Crypto mogul Do Kwon, known as 'the cryptocurrency king ... (https://www.thehindu.com/sci-tech/technology/crypto-mogul-do-kwon-known-as-the-cryptocurrency-king-pleads-guilty-to-fraud-charges/article69927096.ece)

[9] 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)