Do Kwon Pleads Guilty in UST/LUNA Collapse Fraud Case in the U.S. — Impact on Crypto Regulation and Market

Do Kwon, co-founder of Terraform Labs, has withdrawn his previous plea of not guilty and admitted guilt in two counts of wire fraud and conspiracy to commit fraud in the United States. Nearly three years after the collapse of the stablecoin TerraUSD (UST) and its sister token LUNA in 2022, his legal position has changed dramatically. This shift was shaped by multiple factors, including prolonged detention, a civil settlement with the U.S. Securities and Exchange Commission (SEC), and the recent trend toward harsher penalties in cryptocurrency-related cases.

From Not Guilty Plea to Guilty Admission

In March 2023, Do Kwon was indicted on nine counts, including securities fraud, market manipulation, money laundering, and wire fraud, in connection with his activities at Terraform Labs. Initially pleading not guilty to all charges, in August 2025 he agreed to a plea deal with U.S. prosecutors, admitting guilt to two charges. The agreement includes a $19 million fine and a condition that prosecutors will not seek a sentence exceeding 12 years. Sentencing is scheduled for December 11, 2025.

Factors Behind the Change in Stance

The decision to change his plea is thought to be the result of several overlapping factors. First, since being extradited from Montenegro to the U.S. in December 2024, he has been held without bail for about seven months, creating significant psychological and strategic pressure. Second, in June 2024, he reached a settlement with the SEC that included an $80 million civil penalty, reducing some legal risks. Additionally, the 25-year prison sentence handed to former FTX CEO Sam Bankman-Fried in 2024 reflects a trend of harsher sentencing in major crypto cases, motivating risk-averse plea negotiations.

The UST/LUNA Collapse and Its Impact

In May 2022, the algorithmic stablecoin UST and LUNA collapsed in quick succession, wiping out approximately $40 billion from the cryptocurrency market. This incident triggered a wave of global regulatory tightening, especially around stablecoin design, reserve transparency, redemption mechanisms, and governance structures. South Korean authorities have also sought Kwon’s extradition, keeping the case in the international spotlight.

U.S. Criminal Proceedings and International Aspects

The current case in the U.S. District Court for the Southern District of New York is a prime example of cross-border financial crime. Kwon was detained in Montenegro for using forged travel documents and served four months in prison there. During that time, both the U.S. and South Korea sought his extradition, and he was ultimately sent to the United States. Future developments may involve criminal prosecution in South Korea and issues under private international law concerning cross-border enforcement of sentences.

Regulatory and Market Implications

This guilty plea sets an important precedent for how the founders and executives of cryptocurrency projects may be held legally accountable for business failures and investor losses. Regulators may push further for mandatory disclosures, stronger governance, and independent asset audits to protect investors. In particular, frameworks for verifying the risk management and reserve backing of stablecoins like UST/LUNA are expected to be strengthened.

Investor Protection and Acceleration of Civil Litigation

The guilty plea could accelerate civil settlement negotiations with investors who suffered losses. A criminal conviction can serve as a foundation for establishing facts in civil suits, making it easier for plaintiffs to succeed in compensation claims. As a result, many victims may receive restitution more quickly.

Outlook and Industry Implications

Although sentencing will ultimately be at the discretion of the presiding judge, the plea deal increases the likelihood of a reduced prison term. At the same time, ongoing prosecutions in South Korea and other jurisdictions mean that international legal risks remain. For the cryptocurrency industry as a whole, transparent operations and regulatory compliance will be essential for future growth. Regular audit reports and clear disclosure of risks will be critical for building and maintaining investor trust.

Conclusion

Do Kwon’s guilty plea is more than an individual criminal case; it is a critical turning point for the integrity and trust of the entire cryptocurrency market. The case underscores the weight of legal responsibility borne by founders and executives. For sustainable industry growth, innovation within appropriate regulatory frameworks and stronger investor protection measures are essential.

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