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Terraform Labs Founder Do Kwon Expected to Plead Guilty in U.S. Fraud Case

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Do Kwon, the South Korean crypto entrepreneur behind Terraform Labs, is expected to plead guilty in a U.S. federal fraud case tied to the 2022 collapse of his digital currencies TerraUSD and Luna, which wiped out an estimated $40 billion in value.

Court records revealed on Monday that U.S. District Judge Paul Engelmayer scheduled a hearing for Tuesday in Manhattan after being advised that Kwon may change his plea. Kwon had previously pleaded not guilty to a nine-count indictment that included charges of securities fraud, wire fraud, commodities fraud, and money laundering conspiracy.

Kwon co-founded Singapore-based Terraform Labs and developed TerraUSD, an algorithmic stablecoin, alongside its sister token Luna. The dramatic failure of the two cryptocurrencies in 2022 triggered widespread investor losses, shook global crypto markets, and sparked heightened regulatory scrutiny of digital assets.

Neither Kwon’s legal team nor the Manhattan U.S. Attorney’s Office have issued statements in response to the latest court developments.

Do Kwon Pleads Not Guilty to U.S. Fraud Charges in $40 Billion Crypto Collapse

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Do Kwon, the South Korean founder of Terraform Labs, pleaded not guilty on Thursday to U.S. fraud charges related to the collapse of his cryptocurrencies TerraUSD and Luna, which resulted in an estimated $40 billion in losses in 2022. The plea followed Kwon’s extradition from Montenegro earlier this week.

Federal prosecutors in Manhattan unsealed a nine-count indictment against Kwon, charging him with securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering. The allegations stem from claims that Kwon deceived investors about the stability and mechanisms of TerraUSD, a so-called stablecoin intended to maintain a value of $1.

Court Proceedings

At the hearing before U.S. Magistrate Judge Robert Lehrburger, Kwon, 33, appeared in casual attire as his lawyer, Andrew Chesley, entered the plea. Kwon was ordered to remain detained, as his legal team did not request bail. He is scheduled to return to court on January 8.

Prosecutors allege that in 2021, Kwon falsely claimed that the “Terra Protocol,” a computer algorithm, restored TerraUSD’s value when it dipped below its $1 peg. In reality, prosecutors assert, a high-frequency trading firm secretly purchased millions of dollars worth of TerraUSD to artificially stabilize its price. These actions allegedly misled retail and institutional investors, driving up the value of Luna, a related cryptocurrency, to $50 billion by early 2022.

When TerraUSD’s value plummeted again in May 2022, prosecutors said efforts to support its price failed, leading to a crash that impacted other cryptocurrencies, including Bitcoin, and caused widespread market disruption.

Legal and Financial Fallout

In June, Kwon agreed to an $80 million civil fine and a ban on crypto transactions as part of a $4.55 billion settlement with the U.S. Securities and Exchange Commission (SEC). The SEC had previously identified Jump Trading as the firm that supported TerraUSD’s price in 2021, though prosecutors have not named it in the current case.

Terraform Labs declared bankruptcy in January 2023, and Kwon faced additional legal troubles in Montenegro, where he was detained on forgery charges in March 2023 before being extradited to the U.S.

Industry-Wide Reckoning

Kwon is among several cryptocurrency leaders facing legal scrutiny following the 2022 downturn in digital asset prices. Sam Bankman-Fried, founder of FTX, is appealing his conviction and 25-year sentence for defrauding customers out of $8 billion, while Alex Mashinsky, former CEO of Celsius Network, recently pleaded guilty to fraud charges.

As one of the most high-profile cases in the crypto sector, Kwon’s trial is expected to serve as a critical test of accountability in the rapidly evolving cryptocurrency market.