Crypto mogul Do Kwon pleads guilty to fraud

Do Kwon, Founder Of Terra Crypto Platform

(Image credit: Filip Filipovic/Getty Images)

Do Kwon, a crypto entrepreneur from South Korea, once boasted of building a stablecoin “ecosystem” – free from the tentacles of Wall Street and government regulators. Appearing in a Manhattan courtroom, wrists and ankles chained, in a bright yellow prison jumpsuit, was not part of the plan.

Nonetheless, Kwon might consider he got off lightly. Having pleaded guilty to two criminal counts of fraud related to the $40 billion collapse of digital coins Luna and TerraUSD in 2022, he may get just 12 years in jail as part of his plea deal, notes the BBC. That sound you hear in the background is Sam Bankman-Fried – the former FTX supremo, locked up for 25 years for a much smaller fraud, rattling the bars of his cage.

It’s hard to overstate the impact of the sudden implosion of Kwon’s Terraform Labs empire, which was described by one analyst at the time as “the largest destruction of wealth… in a single project in crypto’s history”. The size of the crash helped trigger the descent of the whole sector into the so-called “crypto winter” of 2022, which the World Economic Forum later estimated wiped out some $2 trillion of assets.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

The shock was all the more profound because TerraUSD, which was pegged to the greenback, was considered one of the most established stablecoins, says The Verge – supposedly much less “volatile” than many of its peers. It attracted some 280,000 investors, including leading US crypto venture-capital firms and an army of small investors in Korea. Prosecutors later claimed that Kwon, 33, constructed a “financial world” that was “built on lies and manipulative and deceptive techniques”, says the FT. The human cost of the heavy losses was very real. “Media reports of multiple suicides associated with the collapse” made him “a villain in his home country”.

Do Kwon, king of the "Lunatics"

Kwon’s court appearance last week caps “a spectacular fall from grace” for the once brash Stanford graduate who, at his boastful peak, derided critics as “cockroaches” and seemed to relish stirring up trouble, says The New York Times. He claimed his “invention” of an “algorithmic stablecoin” – pegged to the dollar, but backed by the fluctuations of a sister currency, Luna – would transform finance. Fans called him king of the “Lunatics”. Kwon himself dreamed big aloud about the Terra universe he would create. Born into a well-heeled Seoul family, and educated at the elite Daewon Foreign Language High School, he studied computer engineering at Stanford.

Jobs at Microsoft and Apple followed, but Kwon was increasingly hooked by the crypto craze and in 2018 returned to Korea to co-found Terraform Labs. It took the effervescent, social media-savvy entrepreneur just a couple of years to emerge as one of crypto’s “most-watched whales”, says Bloomberg.

When his Terra empire collapsed, life changed dramatically for Kwon. After the South Korean authorities issued a warrant for his arrest in 2023, he fled, “living the life of an exiled oligarch on the run, carrying multiple devices and passports”, says Disruption Banking. “An older-looking, world-wary Do Kwon” eventually surfaced in Montenegro, from where he was eventually extradited to the US – after being caught at the airport trying to escape to the United Arab Emirates using a forged Costa Rican passport.

As part of his plea deal, Kwon must forfeit more than $19 million in proceeds from his crypto dealings. In time, he may also have to face the music back home: he still faces charges in South Korea. “I’ve never thought about what could happen to me if this fails,” he told Coinage in 2022. Plenty of time for that now.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Jane writes profiles for MoneyWeek and is city editor of The Week. A former British Society of Magazine Editors editor of the year, she cut her teeth in journalism editing The Daily Telegraph’s Letters page and writing gossip for the London Evening Standard – while contributing to a kaleidoscopic range of business magazines including Personnel Today, Edge, Microscope, Computing, PC Business World, and Business & Finance.

She has edited corporate publications for accountants BDO, business psychologists YSC Consulting, and the law firm Stephenson Harwood – also enjoying a stint as a researcher for the due diligence department of a global risk advisory firm.

Her sole book to date, Stay or Go? (2016), rehearsed the arguments on both sides of the EU referendum.

She lives in north London, has a degree in modern history from Trinity College, Oxford, and is currently learning to play the drums.