Kwon Do-hyung of the 'Terra Incident' Admits Guilt...Prosecution Recommends Up to 12 Years

Kwon Do-hyung (33), founder of Terraform Labs, who was facing criminal charges in the United States related to the issuance of the stablecoin 'TerraUSD' (hereinafter referred to as Terra) and fraud, has changed his stance and admitted guilt, resulting in a significantly reduced prosecution sentence request.

On the 11th (local time), at a hearing held at the United States District Court for the Southern District of New York, Kwon pleaded guilty to charges of conspiracy to commit fraud and wire fraud. In court that day, Kwon stated, "I knowingly agreed with others to commit fraud, and in fact, deceived buyers of the cryptocurrencies issued by my company, Terraform Labs."

He added, "By not disclosing the role of the trading company in the process of restoring the peg (to 1 USD), I gave explanations about the restoration that were false and misleading," and "I want to apologize for my actions. I take full responsibility for what I have done."

Under the plea bargain agreement (reducing or adjusting the sentence in exchange for a guilty plea), the prosecution has decided to confiscate $19 million (approximately ₩2.65 billion) and some other assets from Kwon.

The potential sentence was also greatly reduced. The maximum combined sentence for the conspiracy to commit fraud (5 years) and wire fraud (20 years) that Kwon pleaded guilty to was up to 25 years. However, under the terms of the plea agreement, the prosecution decided to seek no more than 12 years without further indictments.

Additionally, if Kwon serves half of his final sentence and complies with plea bargain conditions, the U.S. Department of Justice would not oppose Kwon's application for the international prisoner transfer program. As a result, if he wishes to return to Korea, he could serve half of his sentence in Korea.

Kwon has also been charged in Korea for violations of capital markets law, and when he was arrested in Montenegro last year, both the United States and Korea requested his extradition. Kwon wished to return to Korea, but the Montenegrin authorities decided to extradite him to the United States, as the U.S. request had arrived first after deliberation.

Kwon faces allegations of defrauding global investors into investing $4 billion in Terraform Labs from 2018 to 2022.

Terraform Labs claimed that when issuing the stablecoin Terra, it used the 'Terra Protocol' algorithm to peg its value to USD 1. However, this turned out not to be true. In reality, it was suspected that the trading company contracted by Terraform Labs intervened to artificially support Terra's price, and after Terra lost its peg to the dollar, many investors suffered losses.

Kwon, who fled after the collapse of Terra and Luna, was apprehended in March of last year at Podgorica International Airport for using a forged passport.

The United States Attorney's Office for the Southern District of New York previously indicted Kwon on eight charges, including securities fraud, wire fraud, commodities fraud, and conspiracy to manipulate market prices, immediately after he was apprehended in Montenegro in March 2023. After extradition from Montenegro, a charge of conspiracy to launder money was added.

If he were to be found guilty of all these charges in the trial scheduled after February next year, Kwon could have faced up to 130 years in prison.

Kwon's side has denied allegations of deceiving investors in a lawsuit with the SEC, arguing that even in failure, both Kwon and Terraform Labs maintained integrity in their cryptocurrency products and operations.

Separately, Kwon previously agreed to pay $4.47 billion (approximately ₩6.2 trillion) in disgorgement and penalties in the civil suit brought by the U.S. Securities and Exchange Commission (SEC). However, his company is now reported to have filed for bankruptcy.

Meanwhile, Kwon's sentencing hearing will be held on the 11th. Although the prosecution has recommended a maximum of 12 years, the final sentence will be determined at the judge's discretion, so it could be higher.

Reporter Kim So-yeon, Hankyung.com sue123@hankyung.com