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