Co-Founder of Terraform Labs Owns Up to Alleged $40 Billion Scam in Federal Court Appearance
In a landmark case, Terraform Labs co-founder Do Kwon has accepted responsibility for a cryptocurrency fraud that cost investors an estimated $40 billion. Kwon pleaded guilty to two federal charges in Manhattan federal court on a specified date.
The guilty plea was in relation to misleading investors about the stability mechanisms behind TerraUSD, a stablecoin. Kwon acknowledged false statements about TerraUSD's price recovery mechanism during a hearing. He claimed that the recovery was due to an automated computer algorithm called "Terra Protocol," when in reality, it was not.
The deception helped fuel massive investment in Terraform's products. In May 2021, TerraUSD temporarily lost its dollar peg, a significant blow to the cryptocurrency market. The scheme involving TerraUSD is described as one of the largest frauds in history by Manhattan prosecutors.
The information was reported by Reuters. Kwon faces ongoing investigations in South Korea but has not yet been convicted or sentenced there. In 2024, he pleaded guilty in the US to conspiracy and fraud related to the TerraUSD stablecoin, agreed to pay an $80 million civil penalty, and could face up to 12 years in US prison. Sentencing is expected in December 2024.
Kwon has been in custody since his extradition from Montenegro late last year. Under his plea agreement, he faces a maximum 25-year prison sentence, with the government agreeing to seek no more than 12 years if he continues cooperating. Prosecutors indicated they would not oppose Kwon's potential transfer to South Korea after serving half his U.S. sentence.
The value of Luna, a related cryptocurrency, reached $50 billion by spring 2022. However, the Terra ecosystem ultimately collapsed in May 2022, wiping out tens of billions in investor funds. TerraUSD was supposed to maintain a consistent $1 value, but its devaluation led to the downfall of the entire system.
Kwon's sentencing is scheduled for December 11. As the case unfolds, the impact of this fraud on the cryptocurrency market and the potential consequences for Kwon continue to be closely watched by investors and regulators worldwide.
