In a significant turn of events within the cryptocurrency realm, Do Kwon, the co-founder of Terraform Labs, has recently accepted guilt concerning fraud allegations from U.S. authorities after a series of turbulent years marked by the demise of his company.
Kwon, who was instrumental in launching the TerraUSD stablecoin and its associated token Luna (now known as Luna Classic), witnessed a staggering $40 billion evaporate in value during the market crash of 2022. His plea was entered during a court session in New York earlier this week.
Do Kwon’s Plea in Major Fraud Indictment
Confronting a hefty nine-count indictment that included serious charges such as securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering, the evidence against Kwon was substantial as presented by U.S. authorities.
Initially, Kwon maintained a not-guilty stance in January. However, he changed his narrative, ultimately opting to plead guilty to two specific charges: conspiracy to defraud investors and wire fraud as part of a negotiated deal with Manhattan’s U.S. Attorney’s Office.
The allegations primarily revolved around Kwon’s deceptive assurances to investors about TerraUSD, a stablecoin designed to maintain equivalence with the U.S. dollar. Notably, prosecutors assert that when TerraUSD fell below its intended value in May 2021, Kwon falsely proclaimed that the “Terra Protocol,” a computer algorithm, would restore its price.
Furthermore, officials claim that Kwon had secretly arranged for a high-frequency trading firm to purchase substantial amounts of the token, creating an artificial price boost to reinstate its dollar peg.
This deceptive practice not only misled retail investors but also attracted institutional buyers, fueling the value of Luna to a peak of approximately $50 billion by early 2022.
Legal Implications and SEC Settlement
During the proceedings, Kwon publicly acknowledged his wrongdoing, stating, “I misrepresented critical details regarding the stabilization of the peg, neglecting to disclose the involvement of a trading firm in that process. My actions were inappropriate.”
As an outcome of his legal challenges, Kwon has consented to pay an $80 million civil penalty and will face a prohibition from participating in cryptocurrency transactions, in addition to a larger $4.55 billion settlement with the Securities and Exchange Commission (SEC).
Currently in custody after being extradited from Montenegro, Kwon also faces accusations in South Korea, including conspiracy to commit commodities fraud, securities fraud, and wire fraud.
Looking ahead, the potential repercussions for Kwon could entail a prison term of up to 25 years, although prosecutors have hinted at recommending a lesser sentence of 12 years, contingent on his acceptance of responsibility. Sentencing is slated for December 11.
In the aftermath of Kwon’s legal battles, Luna Classic has shown signs of life, experiencing an 8% increase over the past week. This uptick brought the price to approximately $0.00006284, recovering somewhat from its yearly low of $0.00012 earlier this January.
Despite Kwon’s legal woes, the cryptocurrency market continues to evolve, raising questions about investor confidence and the regulatory landscape for digital assets.
