Do Kwon Pleads Guilty To Fraud

United States Attorney for the Southern District of New York, Jay Clayton, announced today that DO HYEONG KWON, the co-founder and former chief executive officer of Terraform Labs PTE, Ltd. (“Terraform”), pled guilty to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud; and one count of committing wire fraud in connection with fraudulent schemes at Terraform.  KWON touted Terraform as a self-contained and decentralized financial world that leveraged proprietary blockchain technology to offer its own cryptocurrencies, payment system, stock market, and savings bank.  In reality and unbeknownst to Terraform investors and users, the core suite of Terraform products did not work as advertised and had been manipulated to create the illusion of a functioning and decentralized financial system.  KWON pled guilty today 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 U.S. Attorney Jay Clayton.  “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.  Kwon’s plea represents an important milestone in this Office’s continuing efforts to bring integrity and accountability to the digital asset markets.  It would not have been possible without the dedicated work of our law enforcement partners at the FBI and the assistance of our allies abroad.”

According to the allegations contained in the Superseding Indictment and statements made in public filings and in public court proceedings:

Terraform was a blockchain and cryptocurrency company co-founded by KWON in 2018.  Terraform distinguished the Terra blockchain from other competing blockchains by issuing so-called algorithmic stablecoins pursuant to what it called the “Terra Protocol.”  According to KWON and others, Terraform stablecoins maintained a steady value even under changing market conditions.  In or around September 2020, Terraform publicly announced the launch of Terraform’s stablecoin pegged to the U.S. dollar, TerraUSD (“UST”).  Terraform promotional materials claimed that, under the Terra Protocol, one UST could always be exchanged for $1 worth of LUNA, the Terra blockchain’s native token.  Conversely, $1 worth of LUNA could always be exchanged for one UST. 

Over time, Terraform and its affiliated entities developed and launched various purportedly decentralized finance applications and entities designed to increase the number of users and transactions on the Terra blockchain, including:

• Chai, a Korean payment platform that purportedly began using the Terra blockchain to process financial transactions in or around June 2019;
• Mirror Protocol, a platform launched around December 2020 that allowed for the creation, buying, and selling of synthetic versions of financial assets, such as stocks listed on United States securities exchanges, using the Terra blockchain;
• Anchor Protocol, a platform launched in or around March 2021 that allowed for borrowing and lending UST, and that offered an approximately 20% annual return for UST deposited in Anchor;
• And the Luna Foundation Guard Ltd. (“LFG”), an entity incorporated publicly and launched in or around January 2022 that eventually maintained billions of dollars’ worth of financial reserves in the form of other cryptocurrencies such as bitcoin (the “LFG Reserve”) to purportedly support UST’s peg to the dollar. 

KWON solicited and obtained investments from several investment firms in the United States and other locations, with the investments primarily consisting of agreements for the purchase or loan of Terraform’s cryptocurrencies built on the Terra blockchain.  Through his work at Terraform, KWON became one of the most prominent business leaders in the cryptocurrency industry.  In truth, KWON’s constructed financial world was built on lies and manipulative and deceptive techniques used to mislead investors, users, business partners, and government regulators regarding Terraform’s business:

• The Stablecoin Misrepresentations: KWON made misrepresentations about the effectiveness of the Terra Protocol, which purportedly used a computer algorithm to maintain the value of one UST at $1.  But as KWON knew, after the Terra Protocol failed to cause the restoration of UST’s $1 peg in May 2021, KWON reached an agreement with executives at a high-frequency trading firm (the Trading Firm) so that the Trading Firm would purchase large amounts of UST in order to artificially support UST’s $1 peg.
• The LFG Misrepresentations: KWON claimed LFG was managed by an independent governing body and was tasked with deploying billions of dollars’ worth of financial reserves to defend UST’s peg.  But as KWON knew, he controlled both the LFG and Terraform.  In addition, KWON misappropriated hundreds of millions of dollars in assets from the LFG.
• The Mirror Misrepresentations: KWON claimed that Mirror operated in a decentralized manner and that he and Terraform played no role in Mirror’s governance.  But as KWON knew, he and Terraform secretly maintained control over Mirror, and used automated trading bots to manipulate the prices of synthetic assets that Mirror issued.  KWON also caused Terraform to inflate key user metrics to deceive investors.
• The Chai Misrepresentations: KWON falsely claimed that the Terra blockchain was being used to process billions of dollars in financial transactions for Chai.  In doing so, KWON claimed that the Terra blockchain had “real world” applications or uses, as distinct from competing cryptocurrency platforms.  But as KWON knew, Chai processed transactions through traditional financial processing networks, not the Terra blockchain.
• The Genesis Coin Misrepresentations: KWON made misrepresentations about the use of a supply of one billion stablecoins programmed into the Terra blockchain at its creation (the Genesis Stablecoins), which were purportedly held in reserve for Terraform for certain specified uses.  But KWON used at least $145 million worth of Genesis Stablecoins, among other things, to fund fake Chai blockchain transactions and trading bots to manipulate the prices of synthetic assets that Mirror issued.

At its peak in the spring of 2022, the total apparent market value of all UST and LUNA exceeded $50 billion.  Much of this growth followed KWON’s misrepresentations about Terraform and its technology, including efforts in May 2021 by KWON and his associates to secretly manipulate the market for UST.  By May 2022, the UST market was approximately nine times larger in terms of market capitalization and more than eight times larger in terms of daily trading volume relative to May 2021.  In May 2022, UST’s peg began to break down as it had a year prior.  While KWON was able to cover up the weaknesses of the Terra Protocol in May 2021, he was not able to do so in May 2022.  As a result, the value of UST and LUNA crashed, and investors suffered over $40 billion in losses.  After the crash of UST and LUNA in May 2022, KWON caused the distribution of a misleading “third party audit” report to cover up his crimes.

On or about March 23, 2023, KWON was arrested in Europe while traveling on a false passport.  U.S. authorities submitted a formal request for the arrest and extradition of KWON on March 25, 2023.  On December 31, 2024, KWON was extradited from Montenegro to the United States.

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KWON, 33, of the Republic of Korea, pled guilty to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud; and one count of committing wire fraud, which combined carry a maximum sentence of 25 years in prison.  As part of his plea, KWON has agreed to forfeit over $19 million in proceeds from his illegal schemes, including his interest in Terraform and its cryptocurrencies. KWON is scheduled to be sentenced by Judge Engelmayer on December 11, 2025. 

The maximum potential sentence in this case is prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. 

Mr. Clayton praised the outstanding work of the Federal Bureau of Investigation (“FBI”), FBI’s Virtual Assets Unit, FBI’s Economic Crimes Unit, FBI’s International Operations Division and Legal Attaché office covering Montenegro, the Ministry of Justice of the Republic of Montenegro, the Ministry of Interior of the Republic of Montenegro, the Montenegro Supreme State Prosecutor's Office, and the Montenegro Special State Prosecutor's Office.  Mr. Clayton also gave special thanks to the Department of Justice’s Office of International Affairs for securing the extradition. 

The case is being overseen by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Marguerite B. Colson, Sarah Mortazavi, Kimberly Ravener, and Andrew Thomas are in charge of the prosecution.