Terra/Luna creator Do Kwon pleaded guilty to one charge of conspiring to commit fraud and one charge of wire fraud on Tuesday, following an earlier not guilty plea and a very lengthy extradition process.

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The narrative

Terraform Labs founder Do Kwon, who created the TerraUSD stablecoin and its counterpart Luna (LUNA) token, pleaded guilty to conspiracy to commit securities, commodities or wire fraud and wire fraud

Why it matters

Terra and its related ecosystem blew up in spectacular fashion in 2022, with Luna falling from an all-time high price of nearly $120 to less than 10 cents over the course of five weeks. UST broke its peg, and the event was the first domino in the various other crypto company bankruptcies over the course of 2022.

Breaking it down

In 2021, Do Kwon repeatedly assured investors that Terra and Luna were safe investments, through tweets and appearances on programs like CoinDesk TV.

On Tuesday, he apologized as part of his guilty plea.

“Between 2018 and 2022 in the Southern District of New York and elsewhere, I knowingly agreed with others to engage in a scheme to defraud, and did in fact defraud, purchasers of the cryptocurrencies issued by my company, Terraform Labs,” he said, going on to say he made “false and misleading statements” about why UST regained its peg.

As part of his plea deal, the Department of Justice agreed to recommend a prison sentence of no more than 12 years, and Kwon can apply for an international prison transfer once he’s served 50% of his sentence. One of Kwon’s attorneys noted that there are still outstanding charges against him in South Korea, the country Kwon tried to get himself extradited to during his extended stay in Montenegro.

Kwon’s statement spoke to that: “The purchasers who I defrauded were in the Republic of Korea, the Southern District of New York and elsewhere,” he said.

Read more.

Tuesday

• 14:30 UTC (10:30 a.m. ET) Do Kwon pled guilty to two charges tied to the operation and eventual collapse of the Terra/Luna stablecoin ecosystem.

• (D.C. Circuit Court of Appeals) Two judges on a three-judge appeals court panel ruled that a district court did not have appropriate jurisdiction in blocking the Trump administration’s efforts to reduce the size of the Consumer Financial Protection Bureau, writing in part that, “The plaintiffs point to no regulation, order, document, email, or other statement, written or oral, purporting to shut down the CFPB” and that “the government does not claim the power to ‘shut down’ the CFPB.” Attorney General Pamela Bondi said in a tweet afterward that the circuit court had “sided with my [Department of Justice] attorneys in our effort to dismantle the CFPB.” The circuit court panel did open the door for a potential en banc hearing with the full D.C. Circuit Court of Appeals.
• (The Washington Post) The White House removed IRS Commissioner Billy Long after he clashed with the White House over sharing confidential taxpayer information, the Post reported. CNN also reported that the IRS did start “sharing sensitive taxpayer data [last] week with immigration authorities.”
• (The Associated Press) States are starting to take action against the possibility that Big Tech firms’ datacenters are driving up residents’ electricity prices.
• (Bloomberg) Bloomberg published an analysis of Tron creator Justin Sun on its Billionaires Index, saying he owns over 60 billion TRX (~$4.9 billion) — “the majority of its supply” — as well as $3.55 billion in other crypto holdings and $3.73 billion in HTX holdings. Sun filed for a temporary restraining order to block publication (although the page was already published), with exhibits confirming that his team shared wallet addresses and other information with Bloomberg to help the news organization verify his holdings.
• (Politico) The fallout from the hack of the federal court database system PACER continues.
• (Reuters) Reuters has a detailed report out about Meta’s artificial intelligence policies, from large language model chatbots inviting people to real addresses to enabling these technical models to engage with minors using language that seems to be more suitable for people who aren’t minors. Some of these provisions were changed after Reuters asked about them, the news organization reported.
• (New York Magazine) This is a lengthy and bonkers deep dive into two individuals accused of kidnapping an Italian crypto investor in New York. It is well worth your time to read.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Bluesky @nikhileshde.bsky.social.

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See ya’ll next week!

One of the most prolonged cases in the crypto world surrounding the infamous Terra has finally seen its former head accept responsibility for his crimes.

Court documents reveal the magnitude of the offences, and hopefully, this can bring some peace to the affected.

Owning Up to the Wrongdoings

The U.S attorney for the Southern District of New York, Jay Clayton, announced yesterday that Do Hyeong Kwon (Do Kwon) pled guilty to one count of conspiring to commit commodities, securities, and wire fraud, and one count of committing wire fraud connected to deceitful schemes at Terraform.

The platform was touted by the charged CEO as a self-contained, decentralized financial ecosystem, leveraging pioneering blockchain technology and offering a variety of financial products, including its own cryptocurrency, payment system, stock market, and savings bank.

The harsh reality was that investors and users of Terraform were unaware that none of the instruments offered functioned as intended and were manipulated to believe that everything was working optimally. Do Kwon admitted guilt before U.S. District Judge Paul A. Engelmayer.

“Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history,” said Clayton.

“Kwon attracted tens of billions in funds to Terraform’s ecosystem by promising a self-stabilizing stablecoin. By the time the markets discovered that the ecosystem was unstable, it was too late: the system collapsed, and investors around the world suffered billions of dollars in losses.”

The allegations stated in the Superseding Indictment, along with further court proceedings and public filings, note that the company was founded in 2018. It distinguished its blockchain from others by issuing algorithmic stablecoins under the “Terra Protocol.”

According to reports, these stablecoins maintained their value regardless of changes in underlying market conditions. Around September 2020, the dollar-pegged TerraUSD (“UST”) was launched, and promotional materials claimed that under the protocol, one UST can always be exchanged for $1 worth of the blockchain’s native token, LUNA, and vice versa.

The Numerous False Pretenses

Over the years, the company, alongside its various entities, developed and advertised several financial products as decentralized finance applications, aimed at increasing the number of users and transactions on the Terra blockchain. Some of them include:

• Chai, a Korean payments platform that was supposedly using the Terra blockchain to process transactions around June 2019, was untrue, as traditional methods and networks were used for processing.
• Mirror Protocol, which went live in December 2020, enabled users to create, buy, and sell synthetic versions of assets, such as stocks listed on US exchanges, using the now obsolete blockchain. In reality, Terraform had control over the protocol and utilized trading bots to manipulate the prices of the assets that it issued.
• The Luna Foundation Guard Ltd (“LFG”) was a public entity launched around January 2022 that purportedly maintained a reserve worth billions of dollars in cryptocurrency, known as the “LFG Reserve,” to maintain UST’s dollar peg. This was claimed to be regulated by an independent governing body, when in fact, Terraform reigned over it.

Do Kwon received funding from several investment firms in the United States and elsewhere, with the primary agreement being to either purchase or loan the cryptocurrencies created on the Terra blockchain. At the peak of the corporation’s growth, the co-founder who was charged became one of the most affluent leaders in the industry.

Terraform’s pinnacle was around the start of 2022, when the market cap of UST and LUNA went over $50 billion, with the majority of this expansion attributed to misrepresentations about the company and its products. By May 2022, the dollar peg of the UST had already begun to break down, a trend that had started the previous year.

They managed to cover this up in 2021, but failed to do so the following year, which led to their collapse and the loss of over $40 billion. A short time later, arrest warrants and an Interpol Red Notice were issued against the former CEO.

Around the end of March 2023, Do Kwon was captured in Europe while using a fake passport. Authorities from the US submitted a request for his extradition shortly after that, and there was considerable back and forth regarding where he would be charged and tried. He was deported to the United States at the end of last year.

Earlier in June, he pleaded not guilty, but eventually succumbed to the numerous charges against him. As part of his plea, he will have to forfeit $19 million in proceeds from the fraudulent schemes and will be sentenced by Judge Engelmayer on December 11, 2025.

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A US federal court has postponed a key hearing in the case against Terraform Labs co-founder Do Kwon after prosecutors submitted an extensive amount of new evidence, significantly broadening the case.

According to court filings, the status conference, originally scheduled for March 10 in the Southern District of New York, has been pushed to April 10.

Hearing delayed

Prosecutors argued that the defense requires additional time to analyze the newly provided four terabytes of discovery. The court concurred, citing the “voluminous discovery” as justification for the delay.

Court documents indicate that on Feb. 27, the US government handed over 600 gigabytes of evidence to Kwon’s legal team, including data from his cellphones, emails, and crypto transactions.

Authorities now intend to provide an additional four terabytes of discovery by next week.

Despite the postponement, the jury trial remains scheduled for Jan. 26, 2026. Additionally, victims of the Terraform Labs collapse have until April 30 to submit claims for financial losses.

The delay in Kwon’s case introduces further complexity to an already high-profile legal battle. With an immense volume of discovery materials now under review, his defense team must navigate a challenging process ahead of trial.

Federal prosecutors allege that Kwon knowingly misrepresented the stability of Terraform’s ecosystem, leading to one of the most significant financial downturns in crypto history.

Meanwhile, Kwon continues to deny any wrongdoing and claims that the market downturn was unforeseen rather than the result of fraudulent activity.

SEC case

Kwon, who was extradited from Montenegro to the US on Dec. 31, 2024, entered a not guilty plea on Jan. 2 to multiple fraud-related charges. His case stems from the collapse of Terraform Labs’ algorithmic stablecoin, TerraUSD, which resulted in roughly $40 billion in investor losses in 2022.

Kwon’s extradition followed a prolonged legal battle between authorities in Montenegro, South Korea, and the US. Terraform Labs has also faced scrutiny from the Securities and Exchange Commission (SEC), which has accused Kwon of orchestrating a large-scale crypto fraud.

In April 2024, a jury found Do Kwon and Terraform Labs liable for defrauding investors in crypto asset securities. The SEC had argued that Kwon and his company misrepresented the stability of their ecosystem, leading to significant investor losses.

Following the jury’s verdict, the SEC filed a motion requesting $5.3 billion in disgorgement and civil penalties against Terraform Labs and Do Kwon. This amount was described as a “conservative” but “reasonable approximation” of the ill-gotten gains from the alleged fraud.

The court ultimately imposed a $4.5 billion fine on both Kwon and Terraform Labs.

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