Terraform founder Do Kwon pleads guilty to two fraud charges

Terraform Labs co-founder and former CEO Do Kwon, facing federal charges in the United States over his part in the 2022 collapse of the Terra ecosystem, has changed his plea from not guilty to guilty on two counts of wire fraud and conspiracy to defraud.

According to a report on August 12 from Inner City Press—which was at the hearing in U.S. District Court for the Southern District of New York—Kwon pleaded guilty and waived his right to go to trial on two of the nine charges he has been facing from the U.S. government since January 2023.

Reuters first broke the news on Monday that the 33-year-old co-founder of Singapore-based Terraform Labs was expected to enter a change of plea, having initially pleaded not guilty in January to the nine-count indictment charging him with conspiracy to commit commodities fraud, securities fraud, wire fraud, conspiracy to defraud investors, and engaging in market manipulation.

Judge Paul Engelmayer will now decide Kwon’s fate, with a sentencing hearing scheduled for December 11. The disgraced Terraform co-founder faces up to 25 years in prison, but as part of the plea agreement, it was reported that prosecutors would recommend no more than 12 years; the plea agreement with prosecutors would also reportedly impose $19 million in financial penalties on Kwon.

The move almost brings to a close the long-running U.S. criminal case started in 2022 after the collapse of algorithmic stablecoin TerraUSD (UST) and the subsequent catastrophic impact it had on the digital asset space as a whole, resulting in billions of dollars’ worth of losses.

Kwon’s fellow Terraform Labs co-founder, Daniel Shin, is still facing trial in a South Korean court for his part in the scandal.

Terra fiasco

The saga of Terraform Labs’ collapse began in May 2022 when UST lost its peg to the U.S. dollar, leading to printing more of the company’s native token, LUNA, to prop up UST. This led to a crash in LUNA, and the whole Terra ecosystem came tumbling down, with an estimated $60 billion being wiped out of the digital asset space.

Authorities in Kwon’s native South Korea promptly issued an arrest warrant for the co-founder in September of that year for violating capital market rules. He responded by seemingly fleeing to Montenegro—although he denies this interpretation of his actions.

Civil case

Kwon’s woes didn’t begin and end with the criminal charges; he also faced a civil suit from the U.S. Securities and Exchange Commission (SEC). The regulator sued Terraform and Kwon in February 2023, accusing them of orchestrating a “fraudulent scheme” and violating securities laws by selling unregistered securities.

The Terraform v. SEC trial kicked off in March 2024, despite Kwon’s absence, and by April, the jury had found that both Terraform and Kwon misled investors and were liable for civil fraud.

“We are pleased with today’s jury verdict holding Terraform Labs and Do Kwon liable for a massive crypto fraud,” said the SEC, in response to the decision. “Terraform Labs and Kwon, its former CEO, deceived investors about the stability of the crypto asset security and so-called algorithmic stablecoin Terra USD, and they further misled investors about whether a popular payment application used Terraform’s blockchain to process and settle payments.”

The verdict was followed by a filing from Terraform’s legal team suggesting that the court impose a maximum $1 million civil penalty, arguing that the SEC had “failed to prove that it is entitled to the expansive injunction and monetary sanctions it seeks,” and that the proposed fines would have to be obtained from the Luna Foundation Guard (LFG)—a “non-party” in the civil case—and therefore the court “should not grant any injunctive relief or disgorgement.”

However, on June 12, 2024, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York delivered his final judgment on the case, ordering that Terraform was liable for total remedies of just over $4.47 billion. Of this amount, Kwon was personally held liable for just over $204 million.

On top of this hefty bill, Kwon can now add the $19 million in financial penalties he has agreed to pay federal prosecutors. The Terraform co-founder will have to wait until December to find out how many years of his life he will also have to pay for.

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