Terraform Labs co-founder Do Kwon is expected to plead guilty in a U.S. criminal case over the $40 billion collapse of the TerraUSD stablecoin in 2022. U.S. District Judge Paul Engelmayer in New York has set a change-of-plea hearing for Tuesday, where Kwon must explain in detail how he broke the law if he admits guilt.
Kwon pleaded not guilty in January, but the new court schedule shows he may now change his mind after months of legal battles . He faces several charges, including conspiracy to defraud, commodities and securities fraud, market manipulation, wire fraud, and conspiracy to commit money laundering.
Judge sets hearing as Kwon prepares to admit guilt
Judge Paul Engelmayer told Do Kwon he must stand in court and clearly explain what he did and how each guilty plea fits the laws he broke, also known as a “narrative allocution.” The TerraUSD crash erased $40 billion in value and shook the global crypto industry in 2022, so prosecutors want this record to show he was clearly responsible.
Kwon went into hiding after the stablecoin collapsed in May 2022, but police arrested him as he tried to board a private jet to Dubai with a fake passport at an airport in Podgorica, Montenegro, in March 2023.
Kwon stayed in custody in Montenegro for months while the U.S. and South Korea argued over who would try him first. The fight continued into 2024 before Montenegro sent him to the United States.
TerraUSD collapse sparks global crypto crash
Terraform Labs ’ TerraUSD (UST) used a computer system called “mint-and-burn,” linked to its sister coin LUNA, to keep its value at one U.S. dollar. Traders thought it was a safe way to earn steady returns without the big price swings of most cryptocurrencies, because the system made or removed tokens to match supply with demand and hold the dollar value.
In May 2022, the system failed, breaking UST’s dollar peg and crashing its price. The collapse erased about $40 billion in value from UST and LUNA within days, wiping out the savings of thousands of small investors and causing huge losses for big institutions.
The crash shook the crypto market, causing companies that invested heavily in UST or used it in their trading plans to lose money. Several went bankrupt, including the well-known FTX exchange later that year.
A New York jury in 2024 found Do Kwon and Terraform Labs guilty of civil fraud in a case by the U.S. SEC. The jury said they lied to investors about UST’s stability and made false claims about how they used their blockchain technology.
After the verdict, Kwon and Terraform Labs agreed to pay $4.47 billion to the SEC, shut down, and sell assets to repay creditors and victims. Kwon still faces U.S. criminal charges that could mean up to 61 years in prison.
If Kwon enters a guilty plea on Tuesday, it could be one of the highest-profile admissions in crypto scandals ever. It could also bring him closer to being sentenced in the US, although it remains to be seen if he will even end up standing trial in South Korea.
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