Do Kwon’s Legal Woes: A Timeline of Fraud and Consequences
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Do Kwon’s Guilty Plea in US Fraud Case
Do Kwon, the co-founder of the now-defunct blockchain enterprise, Terraform Labs, has faced a turbulent three-year period following the company’s demise. Recently, he pleaded guilty to US fraud charges, marking a significant development in the saga. Kwon, instrumental in developing the TerraUSD stablecoin and the Luna (now Luna Classic) token, witnessed these digital assets lose approximately $40 billion in value in 2022. His guilty plea was entered during a court session in New York earlier this week.
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Admissions of Guilt in Conspiracy and Wire Fraud Charges
Kwon was confronted with grave accusations outlined in a nine-count indictment. These included securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering, according to US authorities. Initially, in January, Kwon had pleaded not guilty, but he later shifted his stance, opting to plead guilty to two charges: conspiracy to defraud and wire fraud. This decision came as part of an agreement with the Manhattan US Attorney’s office.
The charges primarily revolved around misleading investors concerning TerraUSD, a stablecoin designed to maintain a one-to-one value with the US dollar. Prosecutors claim that when TerraUSD’s value dropped below its peg in May 2021, Kwon falsely reassured investors that a computer algorithm known as the “Terra Protocol” would restore the coin’s value. However, authorities allege that Kwon had “secretly arranged for” a high-frequency trading firm to purchase millions of dollars’ worth of the token to artificially inflate its price and recover its pegged value.
This deceptive behavior led both retail and institutional investors to flock to Terraform products, significantly elevating the value of Luna—closely linked to TerraUSD—up to $50 billion by early 2022.
SEC Settlement: Ban on Crypto Transactions
During court proceedings, Kwon expressed regret for his actions, admitting, “I made false and misleading statements about why it regained its peg by failing to disclose a trading firm’s role in restoring that peg. What I did was wrong.” As part of his legal resolution, Kwon agreed to an $80 million civil fine and accepted a ban on engaging in cryptocurrency transactions. This decision is part of a broader $4.55 billion settlement with the US Securities and Exchange Commission.
Following his extradition from Montenegro last year, Kwon has been in US custody. He also faces charges in South Korea for conspiring to commit commodities fraud, securities fraud, and wire fraud. Moving forward, the crypto entrepreneur could face a prison sentence of up to 25 years, although prosecutors have suggested recommending a maximum term of 12 years, contingent on Kwon taking full responsibility for his actions. Sentencing is slated for December 11.
Luna Classic’s Price Recovery
In the aftermath of Do Kwon’s legal troubles, Luna Classic saw an 8% increase over the weekly timeframe. This recovery brought the price to $0.00006284, following a period of continuous decline from its yearly high of $0.00012, reached in January.
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