Crypto Founder Do Kwon Pleads Guilty to Fraud Charges Over TerraUSD Collapse

Published Time: 08-13-2025, 10:15

Do Kwon, the South Korean co-founder of Terraform Labs, has pleaded guilty in U.S. federal court to fraud charges connected to the $40 billion collapse of the TerraUSD and Luna cryptocurrencies. The high-profile case has been described by prosecutors as one of the largest financial frauds in modern history, with investors around the world suffering significant losses.

Guilty Plea in Manhattan Federal Court

On Tuesday, Do Kwon, 33, appeared before a judge in Manhattan federal court, where he pleaded guilty to two fraud charges linked to the downfall of the cryptocurrency ecosystem he co-founded in 2018.

The plea comes more than two years after the dramatic collapse of TerraUSD, a so-called “stablecoin” designed to maintain a one-to-one value with the U.S. dollar, and its sister token, Luna. Prosecutors say the crash wiped out about $40 billion in market value, affecting investors worldwide.

Under a plea agreement, the U.S. government will recommend a maximum prison sentence of 12 years, significantly lower than the 25 years suggested by federal sentencing guidelines, provided Kwon abides by the terms of the deal. Sentencing is scheduled for December 11, 2025.

Background: Terraform Labs and the TerraUSD Collapse

Terraform Labs, based in Singapore, was launched in 2018 with Kwon as its co-founder and public face. TerraUSD was marketed as a reliable stablecoin, a type of cryptocurrency pegged to a stable asset, such as the U.S. dollar, to avoid sharp price swings.

However, in May 2022, TerraUSD lost its dollar peg, triggering a chain reaction that caused both TerraUSD and Luna to plummet in value. Billions in investments were erased almost overnight, with many retail and institutional investors reporting severe financial losses.

Prosecutors allege that Kwon misled investors about the stability of TerraUSD and the safeguards in place to maintain its value, despite being aware of vulnerabilities in the system.

Arrest and Extradition from Montenegro

Following months of international investigation, Kwon was arrested on March 23, 2023, in Montenegro while attempting to travel with a false passport. After being held in custody, he was extradited to the United States on December 31, 2023, to face charges.

U.S. authorities had been pursuing Kwon since the TerraUSD collapse, working with international law enforcement agencies to secure his arrest and transfer.

Financial Penalties and Asset Forfeiture

As part of his plea agreement, Kwon has agreed to forfeit over $19 million in assets, which prosecutors say represent proceeds from fraudulent activity. He will also surrender his ownership stake in Terraform Labs and any remaining interest in its cryptocurrencies.

These forfeitures are intended to contribute to restitution efforts, though officials acknowledge that recovering the full scope of investor losses remains unlikely given the scale of the collapse.

Statements from Legal Representatives and Prosecutors

Kwon’s attorney, Sean Hecker, confirmed that his client had accepted responsibility for misleading investors.

“Do Kwon takes responsibility for making false and misleading statements to the Terra community,” Hecker said.

In a statement issued by the U.S. Attorney’s Office, Jay Clayton described the case as a warning to the cryptocurrency industry:

“Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history. Investors around the world suffered billions of dollars in losses.”

Global Impact and Lessons for the Cryptocurrency Industry

The collapse of TerraUSD and Luna is widely considered a pivotal moment in the regulation of digital assets. Financial analysts note that the case has intensified calls for stricter oversight of cryptocurrency markets, particularly for stablecoins, which had been promoted as a safer alternative to highly volatile tokens.

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have since stepped up enforcement actions against crypto companies accused of misleading investors or violating financial regulations.

Observers say Kwon’s guilty plea may set a precedent for how global authorities handle high-profile crypto fraud cases, underscoring that digital asset markets are not beyond the reach of traditional legal frameworks.

Sentencing Ahead

Kwon is currently in federal custody awaiting his December sentencing. Under the plea deal, prosecutors will request no more than a 12-year prison term, though the final decision rests with the judge.

If approved, the sentence would be one of the most severe penalties ever handed down in a cryptocurrency-related fraud case, signaling a tougher stance by U.S. courts against misconduct in digital finance.