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Do Kwon, the cryptocurrency tycoon behind the $40bn collapse of the TerraUSD crypto token, has pleaded guilty to two fraud counts in a plea deal with US authorities.
The South Korean crypto entrepreneur appeared in a Manhattan courtroom on Tuesday and reversed the not-guilty plea that he had entered shortly after being extradited to the US from Montenegro in December.
“What I did was wrong and I want to apologise for my conduct,” Kwon told the court. “I take full responsibility.” He said he knowingly engaged in a scheme to defraud purchasers of securities issued by his company, Terraform Labs.
Kwon, who was brought into the courtroom wearing a bright yellow jumpsuit, with his wrists and ankles chained, also agreed to forfeit more than $19mn.
Prosecutors said in an indictment in January that Kwon, who co-founded the now-bankrupt crypto group Terraform Labs, “orchestrated schemes to defraud purchasers of cryptocurrencies” and constructed a “financial world” that was “built on lies and manipulative and deceptive techniques”.
Kwon’s stablecoin, TerraUSD, was one of the largest of its kind when it collapsed in 2022. Its crash, and that of its related digital coin, luna, was a trigger for the so-called crypto winter of 2022.
That period culminated in the collapse of crypto exchange FTX, whose founder Sam Bankman-Fried was last year sentenced to 25 years in prison for fraud.
Stablecoins are crypto tokens pegged to real assets such as the US dollar.
The counts to which Kwon has pleaded guilty span conspiracy to commit securities fraud, wire fraud and commodities fraud, and a separate count of wire fraud.
He is due to be sentenced in December, with a maximum possible sentence of 25 years in prison, though the US government’s lawyer on Tuesday said it would argue for a sentence of no more than 12 years.
Kwon’s lawyer Sean Hecker, a partner at law firm Hecker Fink, said: “Mr Kwon acknowledged today that he failed to disclose the role that an outside trading firm had in helping to restore [the stablecoin’s] $1 peg during the May 2021 depegging event.”
He said Kwon “knows that he should have disclosed that role in his public statements . . . and takes responsibility for misleading the Terra community”.
Judge Paul Engelmayer told Kwon, who is not a US citizen, that his conviction was likely to lead to his removal from the US and could have consequences for his ability to enter the country in the future.
The brash 33-year-old, who in his pomp derided his critics as “poor”, had described Terra as “the oldest and most widely used algo[rithmic] stablecoin in existence”, attracting about 280,000 investors including leading US crypto venture capital firms.
But prosecutors said core Terraform products did not work as Kwon advertised, and he deceived people “in order to pump up the value of Terraform’s cryptocurrencies”, which he held large amounts of.
Investors included Changpeng Zhao, the founder of crypto exchange Binance who would later plead guilty to a separate US criminal charge of failure to protect against money laundering.
The heavy losses borne by South Korean retail investors and media reports of multiple suicides associated with the collapse also made Kwon a villain in his home country.
Seoul had sought his extradition from Montenegro, where he was arrested in March 2023, after he tried to travel to the United Arab Emirates using a forged Costa Rican passport. The UAE does not have an extradition treaty with the US.
Terraform Labs last year agreed to pay $4.5bn in a civil fraud case brought by the US Securities and Exchange Commission.
Kwon’s plea comes after Roman Storm, co-founder of cryptocurrency mixer Tornado Cash, was last week convicted of conspiring to operate a money laundering business that moved more than $1bn in dirty money.
Tornado Cash still appears to be up and running, however, and the US Treasury department in March removed economic sanctions on the group. The campaign to have the sanctions lifted was partly funded by US cryptocurrency exchange Coinbase.
Last week, Keonne Rodriguez and William Lonergan Hill, the chief executive and chief technology officer, respectively, at another crypto mixer, Samourai Wallet, pleaded guilty to operating a money transmitting business that transmitted more than $200mn in criminal proceeds.