This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter.
Do Kwon, co-founder of Terraform Labs, pleaded guilty Tuesday to one count of conspiracy to defraud and one count of wire fraud for his role in the $40 billion 2022 collapse of stablecoin TerraUSD (UST).
The guilty plea was a reversal of a prior not guilty plea, which he had entered in December after his extradition from Montenegro.
“Between 2018 and 2022 in the [Southern District of New York] and elsewhere I knowingly agreed to participate in a scheme to defraud purchasers of cryptocurrencies from my company, Terraform Labs. Some purchasers were in SDNY,” Kwon told the court, explaining his plea reversal, according to a report by Inner City Press. “I made false statements about how the peg was restored, and the role of another firm. I knew my statements were false.”
Terra was once the third-largest crypto ecosystem in the world, after Bitcoin and Ethereum. The collapse of the Terra ecosystem – including UST and its associate cryptocurrency LUNA – marked the first major collapse in the crypto market. UST was an algorithmic stablecoin, and after it depegged from the U.S. dollar, a massive sell-off ensued.
Billions of dollars fell out of the crypto market in short order, and within months several dominos fell in the crypto realm. Once crypto hedge fund Three Arrows Capital, which had made large investments in UST and LUNA, collapsed as a result, market contagion eventually spread to Voyager Digital, BlockFi and FTX.
Several months after Terra’s collapse, officials in Kwon’s home country, South Korea, issued a warrant for his arrest. Kwon was believed to be in hiding from September 2022 to March 2023, when he was arrested in Montenegro. He was held there on house arrest until his extradition to the U.S. in December.
“Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history,” said U.S. Attorney Jay Clayton in a prepared statement Tuesday.
“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,” Clayton said.
Kwon faces up to 25 years in prison for his crimes. However, prosecutors have agreed to advocate for 12 years, Inner City Press reported, if Kwon commits no new crimes.
No Comment! Be the first one.