Terraform Labs Co-Founder Admits to $40 Billion Fraud in Federal Court

Terraform Labs co-founder Do Kwon accepted responsibility Tuesday for orchestrating a massive cryptocurrency fraud that cost investors an estimated $40 billion when his digital currency empire collapsed in 2022.

The 33-year-old entrepreneur pleaded guilty to two federal charges in Manhattan federal court, admitting he misled investors about the stability mechanisms behind TerraUSD, a stablecoin that was supposed to maintain a consistent $1 value, according to Reuters .

Prosecutors said Kwon lied to investors in May 2021 when TerraUSD temporarily lost its dollar peg. Instead of revealing that he had secretly arranged for a high-frequency trading firm to buy millions of dollars worth of the token to prop up its price, Kwon falsely attributed the recovery to an automated computer algorithm called "Terra Protocol."

The deception helped fuel massive investment in Terraform's products and drove the value of Luna, a related cryptocurrency, to $50 billion by spring 2022. When the Terra ecosystem ultimately collapsed in May 2022, it wiped out tens of billions in investor funds.

"What I did was wrong," Kwon told U.S. District Judge Paul Engelmayer during Tuesday's hearing, acknowledging his false statements about the stablecoin's price recovery mechanism.

Manhattan prosecutors described the scheme as among the largest frauds in history. Under his plea agreement, Kwon faces a maximum 25-year prison sentence when he appears for sentencing December 11, though the government agreed to seek no more than 12 years if he continues cooperating.

Kwon has been in custody since his extradition from Montenegro late last year and previously agreed to pay $80 million in civil penalties to securities regulators. He also faces criminal charges in South Korea, and prosecutors indicated they would not oppose his potential transfer there after serving half his U.S. sentence.