Do Kwon Pleads Guilty to Fraud Charges in $40 Billion Terra LUNA Collapse Case

• Terra founder admits to misleading investors about TerraUSD stability mechanisms. 
• Faces up to 25 years, but prosecutors will seek no more than 12 under a plea agreement.
• Kwon already agreed to $80 million civil fine in the SEC settlement worth $4.55 billion.

Do Kwon has pleaded guilty to conspiracy to defraud and wire fraud charges in a Manhattan federal court. He also admitted his role in the Terra ecosystem collapse that wiped out approximately $40 billion in investor funds during 2022. The 33-year-old South Korean entrepreneur co-founded Terraform Labs and created the TerraUSD stablecoin and Luna token before their failure.

Kwon entered his not guilty plea to a nine-count indictment in January before he entered his guilty plea before U.S. District Judge Paul Engelmayer. He was indicted for securities fraud, wire fraud, commodities fraud, and money laundering conspiracy for his role in running the Terra ecosystem.

Secret Trading Firm Manipulation Propped Up Failing Stablecoin

Prosecutors alleged that when TerraUSD lost its $1 peg in May 2021, Kwon falsely claimed an algorithmic system called “Terra Protocol” had automatically restored the coin’s stability. Rather, to keep the peg artificially, he had a high-frequency trading company buy millions of dollars’ worth of TerraUSD tokens stealthily.

This deceptive practice enabled Kwon to maintain investor confidence while concealing the fundamental instability of the stablecoin mechanism. The false claims about algorithmic stability drove both retail and institutional investors to purchase Terraform products. This pushed Luna’s value to $50 billion.

In court, Kwon apologized for his actions. He stated that he made “false and misleading statements about why it regained its peg by failing to disclose a trading firm’s role in restoring that peg.” He acknowledged his actions were wrong and accepted responsibility for deceiving investors.

Sentencing and Financial Penalties Create Legal Precedent

Manhattan U.S. Attorney Jay Clayton called Kwon’s action “one of the largest frauds in history.” Kwon faces up to 25 years in prison at his December 11 sentencing, though prosecutors agreed to recommend no more than 12 years if he accepts responsibility.

Kwon previously agreed to pay $80 million in civil fines and accept a lifetime ban from cryptocurrency transactions as part of a $4.55 billion settlement with the Securities and Exchange Commission reached in 2024. This settlement addressed civil violations separate from the criminal charges.

Kwon has remained in custody since his extradition from Montenegro late last year after months of legal battles over his transfer to U.S. jurisdiction. His detention followed his arrest while attempting to travel using fraudulent documents.

Related: Do Kwon Set to Plead Guilty in $40 Billion Fraud Case After “Secret Bailout” Allegations Surface