Do Hyeong Kwon, co-founder and former CEO of Terraform Labs PTE, Ltd., pleaded guilty to conspiring to commit commodities fraud, securities fraud, and wire fraud, as well as committing wire fraud in connection with fraudulent activities at Terraform. The plea was entered before U.S. District Judge Paul A. Engelmayer.
According to the U.S. Attorney for the Southern District of New York, Jay Clayton: “Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history. Kwon attracted tens of billions in funds to Terraform’s ecosystem by promising a self-stabilizing stablecoin. By the time the markets discovered the ecosystem was unstable, it was too late: the system collapsed, and investors around the world suffered billions in losses. Kwon’s plea represents an important milestone in this Office’s continuing efforts to bring integrity and accountability to the digital asset markets. It would not have been possible without the dedicated work of our law enforcement partners at the FBI and the assistance of our allies abroad.”
Terraform Labs was established in 2018 as a blockchain and cryptocurrency company distinguished by its issuance of algorithmic stablecoins under what it called the Terra Protocol. In September 2020, Terraform announced TerraUSD (UST), a stablecoin pegged to the U.S. dollar that could supposedly always be exchanged for $1 worth of LUNA, another token on its blockchain.
The company launched several products aimed at increasing user engagement on its platform:
– Chai, a Korean payment platform that claimed use of Terra blockchain technology;
– Mirror Protocol for trading synthetic financial assets;
– Anchor Protocol offering high returns for lending UST;
– Luna Foundation Guard Ltd., which managed reserves intended to support UST’s peg.
Kwon sought investments from firms in multiple countries through agreements involving Terraform cryptocurrencies.
Investigations revealed that Kwon misrepresented key aspects of his business:
– He falsely claimed that an algorithm maintained UST’s $1 value when he actually arranged secret purchases by a trading firm to artificially support it.
– He asserted Luna Foundation Guard operated independently while maintaining control himself and misappropriating funds.
– He stated Mirror Protocol was decentralized despite retaining control over it.
– He promoted Chai as using Terra blockchain when transactions were processed through traditional networks.
– He misrepresented use cases for Genesis Stablecoins while using them for manipulative purposes.
At its peak in spring 2022, combined market values for UST and LUNA exceeded $50 billion. After efforts to hide weaknesses failed during another market downturn in May 2022, both tokens collapsed resulting in investor losses exceeding $40 billion.
Kwon distributed misleading audit reports after these events occurred.
He was arrested on March 23, 2023, in Europe while traveling with false documents; extradition proceedings began soon after his arrest and concluded with his transfer from Montenegro to United States custody on December 31, 2024.
Kwon has agreed as part of his plea deal to forfeit more than $19 million gained from these schemes including interests held within Terraform and related cryptocurrencies. Sentencing is scheduled for December 11, 2025; he faces up to 25 years imprisonment though final sentencing will be determined by Judge Engelmayer according to statutory guidelines.
U.S. Attorney Clayton commended several agencies involved: “Mr. Clayton praised the outstanding work of the Federal Bureau of Investigation (“FBI”), FBI’s Virtual Assets Unit, FBI’s Economic Crimes Unit, FBI’s International Operations Division and Legal Attaché office covering Montenegro, the Ministry of Justice of the Republic of Montenegro, the Ministry of Interior of the Republic of Montenegro, the Montenegro Supreme State Prosecutor’s Office, and the Montenegro Special State Prosecutor’s Office. Mr. Clayton also gave special thanks to the Department of Justice’s Office of International Affairs for securing the extradition.”
The prosecution is being handled by Assistant U.S. Attorneys Marguerite B. Colson, Sarah Mortazavi, Kimberly Ravener, and Andrew Thomas under supervision from Securities and Commodities Fraud Task Force.
