Terraform Labs co-founder Do Kwon is expected to plead guilty to U.S. fraud charges related to the 2022 collapse of the TerraUSD stablecoin. The collapse of the ecosystem erased an estimated $40 billion in investor value. A plea hearing is scheduled for Tuesday in a Manhattan court.
Do Kwon, the co-founder of Terraform Labs, is anticipated to enter a guilty plea in a US fraud case associated with the 2022 collapse of the TerraUSD (UST) stablecoin. This event resulted in the loss of $40 billion in value and sent shockwaves through the cryptocurrency industry.
A change of plea hearing has been scheduled for Tuesday at 10:30 a.m. in Manhattan federal court by US District Judge Paul Engelmayer. The judge directed Kwon to be prepared to explain how he violated the law if he confesses guilt in an order issued on Monday.
In January, the 33-year-old South Korean entrepreneur pleaded not guilty following a protracted extradition dispute regarding whether he would be prosecuted in the United States or South Korea.
Montenegro Arrest Capped Months-Long International Manhunt
In connection with the implosion of TerraUSD, a Singapore-based algorithmic stablecoin intended to maintain a one-to-one peg to the US dollar through a mint-and-burn mechanism with its sibling token Luna, both countries have pursued charges against Kwon.
In May 2022, the mechanism failed, resulting in the loss of TerraUSD’s peg and a market decline that exacerbated the collapse of FTX, a crypto exchange. The collapse resulted in the loss of billions of dollars in investor wealth and eroded confidence in digital asset markets.
Kwon was a fugitive for months before he and Terraform’s former chief financial officer, Han Chang-joon, were apprehended in Montenegro in March 2023 while attempting to board a private jet destined for Dubai using forged passports. He was held in custody for months while Montenegro considered the competing extradition requests from Seoul and Washington.
Do Kwon’s 92% Stake Reflects Personal Ties to Firm’s Collapse
In April 2024, the US Securities and Exchange Commission (SEC) had already prevailed in a civil fraud case against Terraform and Kwon. Additionally, a New York jury determined that they had deceived investors regarding the stability of TerraUSD. The jury also determined they had made a fraudulent claim regarding using Terraform’s blockchain for transactions by Chai, a well-known Korean payments app.
Kwon and Terraform agreed to pay $4.47 billion for the settlement. Furthermore, they pledged to cease operations. Additionally, they committed to utilizing their remaining assets to satisfy their creditors. It is important to note that Kwon possessed 92% of the company.
Kwon was indicted on nine counts in the US criminal case, which included conspiracy to commit money laundering, securities fraud, wire fraud, and commodities fraud. Judge Engelmayer has directed the defendant’s legal team to draft a comprehensive statement addressing each charge that Kwon intends to confess to.
Guilty Plea Could Shape US and South Korea Prosecutions
Prosecutions. According to court documents, the plea agreement could expedite the process in the United States. Nevertheless, it may also affect ongoing investigations in South Korea. Kwon faces distinct allegations of financial misconduct and fraud under capital markets laws.
The guilty plea would represent a significant shift in one of the most prominent prosecutions in the crypto sector if it were to be accepted. It would also conclude a saga that has traversed continents, courtrooms, and regulatory jurisdictions.
The outcome of Kwon’s case can potentially establish significant precedents for prosecuting international crypto fraud in the future.
