Terraform Labs Founder Do Kwon Pleads Guilty in New York Court; The $40 Billion Terra/Luna Collapse Case Enters Sentencing Phase
(Background: Do Kwon reportedly to plead guilty! After the LUNA crash, he faced nine criminal charges including fraud and money laundering)
(Context: Finally? The Ministry of Justice of Montenegro orders Do Kwon’s extradition to the United States; the Terra founder’s dream of returning to South Korea is shattered)
Do Kwon, co-founder of Terra/Luna, who was once dubbed the “King of Cryptocurrency,” pleaded guilty in a New York federal court on the 12th Eastern Time to conspiracy to commit fraud and wire fraud among nine original criminal charges. This historical incident in the cryptocurrency circle, which resulted in a $40 billion loss of investment, is now finally approaching its conclusion.
Do Kwon faces nine criminal charges, including securities fraud, wire fraud, commodity fraud, and conspiracy to commit money laundering. If all charges are confirmed, he faces a maximum of 135 years in prison.
Plea Agreement Outline
According to reports from Reuters, the prosecution and Kwon reached an agreement suggesting a prison term of no more than 12 years, far below the maximum of 25 years for the two charges. At the same time, Kwon agreed to forfeit approximately $19.3 million in illegal proceeds.
Reportedly, Do Kwon, wearing handcuffs and a canary yellow prison uniform, admitted in court:
“From 2018 to 2022, I knowingly conspired with others to participate in a fraudulent scheme in the Southern District of New York and elsewhere, and did indeed carry out fraud targeting the purchasers of the cryptocurrency issued by my company, Terraform Labs… I did wrong, and I want to apologize for my actions.”
Following the guilty plea, his sentencing hearing is scheduled for December 11 of this year, and the judge may increase or decrease the sentence based on circumstances.
Collapse of Stablecoin Illusion
At its peak, the algorithmic stablecoin TerraUSD (UST) relied on a dynamic burning and minting mechanism with the token Luna, allowing its market value to exceed $50 billion. Kwon testified in court that after the first decoupling in 2021, he secretly bought back through a high-frequency trading firm to create the illusion of “automatic recovery,” thereby attracting new capital.
It wasn’t until May 2022, when continuous selling pressure caused the price to spiral out of control, that UST and Luna quickly went to zero, leading to the bankruptcy of several lending and hedging institutions, and indirectly exacerbating the subsequent FTX crisis.
Global Manhunt and Judicial Cooperation
After the collapse, Kwon chose to flee, and Interpol issued a red notice. After months of tracking, U.S. authorities identified him through the police of Montenegro and completed his extradition to the United States by the end of 2024.
Previously, the SEC had already reached a civil settlement with Terraform Labs in June 2024 for $4.55 billion, with Kwon personally paying $80 million.
New Normal in Regulation
CoinDesk analysis indicates that this case will drive countries to strengthen disclosure of stablecoin reserves and conduct stress tests on algorithmic mechanisms. Observers generally believe the outcome will reinforce regulators’ definitions of responsibility for stablecoin issuers and provide precedents for subsequent reviews in the DeFi sector. For other founders, the event could highlight the concept of “ultimate responsibility”: design flaws in products, even if due to algorithms, cannot eliminate legal accountability.
Investors must also shift from the slogan “high returns mean high risks” to evaluating cash flow, reserve assets, and audit results. Otherwise, even if deemed too big to fail, the next catastrophe could occur in the blink of an eye.
Related Reports
Do Kwon extradited to the U.S. makes “first appearance” and pleads not guilty; prosecution adds conspiracy to commit money laundering charges.
Do Kwon has been extradited to the U.S.! Facing $40 billion LUNA fraud charges.
Do Kwon pleads not guilty; Judge: The most complex case of my career, trial date set for January 2026.