Crypto Magnate Kwon Pleads Guilty to Defrauding Investors of $40 Billion

The Terraform Labs cofounder was extradited to the United States earlier this year from Europe after getting arrested for using a fake passport.

Montenegrin police officers escort Terraform Labs founder Do Kwon in Montenegro's capital, Podgorica, on March 23, 2024. AP Photo/Risto Bozovic, File

Do Hyeong Kwon, cofounder of blockchain and crypto company Terraform Labs, has pled guilty to fraud, admitting that he engaged in criminal schemes that cost investors and users billions of dollars.

Kwon had marketed Terraform as a self-contained and decentralized financial ecosystem leveraging its own blockchain technology, the Justice Department said in an Aug. 12 statement.

“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,” the Justice Department stated.

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

Kwon attracted billions of dollars of investment, 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,“ Clayton said. ”Kwon’s plea represents an important milestone in this Office’s continuing efforts to bring integrity and accountability to the digital asset markets.”

Kwon cofounded Terraform in 2018. In 2020, the company announced the public launch of its stablecoin UST, claimed to be pegged to the U.S. dollar. The company said its algorithm would maintain the value of one UST to $1, the Justice Department said in the statement.

However, in May 2021, UST lost its $1 peg. Kwon then reached an agreement with a trading company to purchase large amounts of UST to keep the $1 peg active, according to the statement.

In May 2022, UST’s $1 peg to the dollar started to break down again, and Kwon was not able to cover it up. As a consequence, the value of UST and Terra blockchain’s native token LUNA crashed, with investors suffering more than $40 billion in losses, according to the statement.

Kwon pleaded guilty on Aug. 12 to one count of committing wire fraud in connection with fraudulent schemes at the company and one count of conspiring to commit commodities fraud, securities fraud, and wire fraud, the Justice Department said.

The two counts combined come with a maximum prison term of 25 years. He is scheduled to be sentenced on Dec. 11, according to the statement. As part of the plea, Kwon agreed to forfeit more than $19 million in proceeds collected as part of the illegal scheme.

The Epoch Times reached out to Kwon’s attorney for comment but did not receive a response by publication time.

Cryptocurrency Scams, Kwon’s Extradition

According to the Justice Department, Kwon was arrested in Europe in March 2023 while traveling with a fake passport. U.S. authorities requested extradition the same month.

In February 2024, a court in Montenegro ruled that Kwon should be extradited to the United States to face charges of fraud rather than being sent back to his home nation of South Korea.

In a Jan. 2 statement, the Justice Department announced that Kwon had been extradited to the United States.

The Securities and Exchange Commission (SEC) also had a case against Terraform and Kwon. On June 13, 2024, the SEC said that he and the firm agreed to pay more than $4.5 billion after a unanimous jury verdict held them liable for fraud.

“Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings,” then-SEC Chair Gary Gensler said at the time.

“This case affirms what court after court has said: The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws.”

Kwon’s case mirrors that of Sam Bankman-Fried, founder of the now-defunct crypto exchange FTX.

FTX came under scrutiny when a November 2022 media report raised concerns about the company’s finances, triggering a massive fund withdrawal wave from customers. The exchange was unable to keep up with the withdrawal and collapsed.

In March 2024, a federal judge sentenced Bankman-Fried to 25 years in prison, finding that he had mismanaged customer funds and defrauded investors of $8 billion.

Meanwhile, crypto fraud surged in the first half of 2025, according to a July 17 report by cryptocurrency investigation company Chainalysis.

“With over $2.17 billion stolen from cryptocurrency services so far in 2025, this year is more devastating than the entirety of 2024,” the company stated.

“By the end of June 2025, 17 [percent] more value had been stolen [year to date] than in 2022, previously the worst year on record. If current trends continue, stolen funds from services could eclipse $4 billion by year’s end.”