Do Kwon pleads guilty to US fraud charges in $40 billion crypto collapse

Do Kwon, the South Korean cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion in 2022, pleaded guilty on Tuesday to two US charges of conspiracy to defraud and wire fraud.

Kwon, 33, who co-founded Singapore-based Terraform Labs and developed the TerraUSD and Luna currencies, entered the plea at a court hearing in New York before US District Judge Paul Engelmayer.

He had pleaded not guilty in January to a nine-count indictment charging him with securities fraud, wire fraud, commodities fraud and money laundering conspiracy.

Accused of misleading investors in 2021 about TerraUSD - a so-called stablecoin designed to maintain a value of $1 - Kwon pleaded guilty to the two counts under an agreement with the Manhattan US Attorney's office, which brought the charges.

“Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history," Manhattan US Attorney Jay Clayton said in a statement.

Kwon faces up to 25 years in prison when Engelmayer sentences him on December 11, though prosecutor Kimberly Ravener said the government had agreed to advocate for a prison term of no more than 12 years provided he accepts responsibility for his crimes.

He is one of several cryptocurrency moguls to face federal charges after a slump in digital token prices in 2022 prompted the collapse of a number of companies.

Prosecutors alleged that when TerraUSD slipped below its $1 peg in May 2021, he told investors a computer algorithm known as "Terra Protocol" had restored the coin's value.

Instead, they said, he arranged for a high-frequency trading firm to secretly buy millions of dollars of the token to artificially prop up its price.

Prosecutors said that false claim and others drove retail and institutional investors to buy Terraform products and boost the value of Luna - a more traditional token that fluctuated in value but was closely linked to TerraUSD - to $50 billion by the spring of 2022.

In court, Kwon apologized for his conduct.

"I made false and misleading statements about why it regained its peg by failing to disclose a trading firm's role in restoring that peg," Kwon said. "What I did was wrong."

Kwon agreed in 2024 to pay $80 million as a civil fine and be banned from crypto transactions as part of a $4.55 billion settlement he and Terraform reached with the US Securities and Exchange Commission.

Kwon has been detained since his extradition from Montenegro late last year.

He also faces charges in South Korea. As part of the deal, prosecutors will not oppose Kwon's potential application to be transferred abroad after serving half his US sentence, Ravener said.