In a significant legal development, a key figure in the cryptocurrency sector admitted to wrongdoing in a Manhattan federal courtroom. The individual pleaded guilty to charges of conspiracy to defraud and wire fraud, directly linked to the collapse of their digital currencies, which resulted in a staggering $40 billion loss for investors during the crypto market downturn in 2022.
While addressing the court, the entrepreneur openly recognized that they had intentionally misled investors regarding how their stablecoin maintained its fixed value of $1. The founder, once at the helm of a multi-billion dollar crypto empire, now faces a sentence that could reach up to 25 years in prison at a hearing set for December 11.
The defendant candidly stated, “I made false and misleading statements about why it regained its peg by failing to disclose a trading firm’s role in restoring that peg,” further declaring, “What I did was wrong.”
This individual’s troubles began with TerraUSD, an algorithmic stablecoin designed to hold a stable value through a system called “Terra Protocol.” In May 2021, when the value of TerraUSD dropped below the target price, the founder claimed that the algorithm autonomously restored the peg. However, it was later revealed that this was not the case. Prosecutors alleged that the entrepreneur orchestrated a deal with a high-frequency trading firm to artificially inflate the price back to $1 without disclosing this information to investors.
This misleading strategy initially succeeded, as both retail and institutional investors invested heavily into associated products. This led to the paired token, Luna, achieving a market capitalization of $50 billion by spring 2022. The situation unraveled when the broader cryptocurrency market crashed, revealing the vulnerabilities within this digital ecosystem.
The guilty plea indicated a significant change from the individual’s previous position when they initially faced a nine-count indictment, including charges of securities fraud and money laundering. After pleading not guilty and being extradited from Montenegro, a plea deal reduced the charges to two counts, yet the potential penalties remain severe. Prosecutors announced that they would recommend a maximum of 12 years if the entrepreneur continues to acknowledge responsibility for the actions taken.
Comments from a U.S. Attorney underscored the gravity of the case, highlighting that the individual exploited the enthusiasm surrounding cryptocurrency to perpetrate one of the largest frauds recorded.
In addition to criminal repercussions, there were civil penalties as well. The entrepreneur and the associated company agreed to a settlement of $4.55 billion with the Securities and Exchange Commission (SEC) for civil charges. The individual was reportedly responsible for a personal share of $80 million and also faces a ban from engaging in cryptocurrency transactions for life.
Having been detained since the extradition late last year while battling various legal issues, the individual’s situation is further complicated by additional charges filed in South Korea, with prosecutors indicating they would not oppose potential international transfer after serving part of the U.S. sentence.
This case reflects a broader trend as several cryptocurrency leaders face federal charges following the market collapse of 2022, which exposed pervasive issues in the digital asset industry. The rapid change in fortunes within cryptocurrency illustrates how yesterday’s innovators can quickly become defendants in legal proceedings.
The entrepreneur’s admission of guilt is notably different from many who continue to contest allegations in court. This acceptance of responsibility could play a role in influencing the eventual sentencing, although it is likely that substantial prison time is unavoidable.
For those who suffered losses as a result of the Terra ecosystem’s failure, the guilty plea may provide a degree of accountability; however, the prospects for recovering lost funds remain uncertain. The complex unwinding of distressed crypto projects often yields minimal recovery for everyday investors.