NEW YORK, NY – Do Hyeong Kwon, the disgraced co-founder and former CEO of Terraform Labs PTE, Ltd., admitted today to orchestrating a massive fraud that sent shockwaves through the cryptocurrency world. Kwon, 32, pled guilty before U.S. District Judge Paul A. Engelmayer to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud, and one count of committing wire fraud. The charges stem from a calculated scheme to mislead investors about the stability and functionality of Terraform’s products, resulting in billions of dollars in losses.
U.S. Attorney for the Southern District of New York, Jay Clayton, didn’t mince words, stating, “Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history.” Clayton detailed how Kwon lured investors with promises of a “self-stabilizing stablecoin” – TerraUSD (UST) – and a revolutionary, decentralized financial ecosystem. The reality, authorities allege, was a meticulously crafted illusion built on manipulated code and false claims.
Terraform, founded in 2018, distinguished itself by issuing algorithmic stablecoins through the “Terra Protocol.” Kwon and his team boasted that these stablecoins would maintain a consistent value regardless of market volatility. In September 2020, Terraform launched UST, claiming a one-to-one exchange rate with LUNA, the Terra blockchain’s native token. This, prosecutors argue, was a cornerstone of the deception. The system was designed to appear stable, but was fundamentally flawed and reliant on constant growth to maintain its facade.
The Terraform ecosystem expanded to include various “decentralized finance” applications designed to attract more users and transactions. These included Chai, a Korean payment platform; Mirror Protocol, a platform for trading synthetic assets; Anchor Protocol, offering an unsustainable 20% annual return on UST deposits; and the Luna Foundation Guard Ltd. (LFG), which amassed billions in cryptocurrency reserves – including Bitcoin – to supposedly back UST’s peg to the dollar. These entities, while presented as independent, were allegedly integral to Kwon’s fraudulent scheme.
Kwon aggressively solicited investments from firms in the United States and internationally, primarily in the form of agreements for Terraform’s cryptocurrencies. As the market began to question the stability of the system, the carefully constructed house of cards came crashing down. The collapse wiped out billions in investor funds and left a trail of financial ruin. Clayton emphasized the importance of the plea, stating it’s “an important milestone in this Office’s continuing efforts to bring integrity and accountability to the digital asset markets.”
The investigation, a joint effort between the FBI and international law enforcement partners, highlights the growing scrutiny of the cryptocurrency industry. Authorities continue to pursue accountability for those who exploit the promise of digital assets for personal gain. The sentencing date for DO HYEONG KWON has not yet been set. Grimy Times will continue to follow this case as it develops.
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Key Facts
- State: New York
- Agency: DOJ USAO
- Category: Fraud & Financial Crimes
- Source: Official Source ↗
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