State of Crypto: Do Kwon Pleads Guilty

Terra/Luna creator Do Kwon pleaded guilty to one charge of conspiring to commit fraud and one charge of wire fraud on Tuesday, following an earlier not guilty plea and a very lengthy extradition process.

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Terraform Labs founder Do Kwon, who created the TerraUSD stablecoin and its counterpart Luna (LUNA) token, pleaded guilty to conspiracy to commit securities, commodities or wire fraud and wire fraud

Terra and its related ecosystem blew up in spectacular fashion in 2022, with Luna falling from an all-time high price of nearly $120 to less than 10 cents over the course of five weeks. UST broke its peg, and the event was the first domino in the various other crypto company bankruptcies over the course of 2022.

In 2021, Do Kwon repeatedly assured investors that Terra and Luna were safe investments, through tweets and appearances on programs like CoinDesk TV.

On Tuesday, he apologized as part of his guilty plea.

“Between 2018 and 2022 in the Southern District of New York and elsewhere, I knowingly agreed with others to engage in a scheme to defraud, and did in fact defraud, purchasers of the cryptocurrencies issued by my company, Terraform Labs,” he said, going on to say he made “false and misleading statements” about why UST regained its peg.

As part of his plea deal, the Department of Justice agreed to recommend a prison sentence of no more than 12 years, and Kwon can apply for an international prison transfer once he’s served 50% of his sentence. One of Kwon’s attorneys noted that there are still outstanding charges against him in South Korea, the country Kwon tried to get himself extradited to during his extended stay in Montenegro.

Kwon’s statement spoke to that: “The purchasers who I defrauded were in the Republic of Korea, the Southern District of New York and elsewhere,” he said.

Read more.

• Paxos Applies for National Bank Trust Charter, Joining Stablecoin Issuers Circle, Ripple: Paxos has filed for a national bank trust charter with the Office of the Comptroller of the Currency.
• Who Is Patrick Witt, President Trump’s Next Senior Adviser on Crypto?: Jesse Hamilton profiled Patrick Witt, who will succeed Bo Hines as a senior adviser on crypto to the White House.
• Wall Street Joins Consumer Advocates to Call for Edit to GENIUS Act on Stablecoins: Wall Street and consumer finance interest groups — including, interestingly, groups that might normally be at odds with each other — jointly signed letters to Congress this week asking lawmakers to close certain provisions in the GENIUS Act that might allow for stablecoin issuers to engage in regulatory arbitrage.
• U.S. Blacklists Crypto Network Behind Ruble-Backed Stablecoin and Shuttered Exchange Garantex: OFAC sanctioned a number of entities and crypto addresses tied to Garantex and its successor Grinex.
• U.S. Fed Officially Scraps Specialist Group Meant to Oversee Crypto Issues: The Fed closed its Novel Activities Supervision Program which focused on banks’ crypto activities (among other things) and was formed a few months after Silicon Valley Bank, Signature Bank and Silvergate Bank all collapsed.
• Trump’s SEC Chair Says Agency Is ‘Mobilizing’ to Update Custody, Other Guidance: SEC Chair Paul Atkins discussed the agency’s Project Crypto on Fox Business Friday morning.
• Hong Kong Regulator Tightens Custody Standards for Licensed Crypto Exchanges: The Hong Kong Securities and Futures Commission rolled out new standards for virtual asset trading platforms.

Tuesday

• 14:30 UTC (10:30 a.m. ET) Do Kwon pled guilty to two charges tied to the operation and eventual collapse of the Terra/Luna stablecoin ecosystem.

• (D.C. Circuit Court of Appeals) Two judges on a three-judge appeals court panel ruled that a district court did not have appropriate jurisdiction in blocking the Trump administration’s efforts to reduce the size of the Consumer Financial Protection Bureau, writing in part that, “The plaintiffs point to no regulation, order, document, email, or other statement, written or oral, purporting to shut down the CFPB” and that “the government does not claim the power to ‘shut down’ the CFPB.” Attorney General Pamela Bondi said in a tweet afterward that the circuit court had “sided with my [Department of Justice] attorneys in our effort to dismantle the CFPB.” The circuit court panel did open the door for a potential en banc hearing with the full D.C. Circuit Court of Appeals.
• (The Washington Post) The White House removed IRS Commissioner Billy Long after he clashed with the White House over sharing confidential taxpayer information, the Post reported. CNN also reported that the IRS did start “sharing sensitive taxpayer data [last] week with immigration authorities.”
• (The Associated Press) States are starting to take action against the possibility that Big Tech firms’ datacenters are driving up residents’ electricity prices.
• (Bloomberg) Bloomberg published an analysis of Tron creator Justin Sun on its Billionaires Index, saying he owns over 60 billion TRX (~$4.9 billion) — “the majority of its supply” — as well as $3.55 billion in other crypto holdings and $3.73 billion in HTX holdings. Sun filed for a temporary restraining order to block publication (although the page was already published), with exhibits confirming that his team shared wallet addresses and other information with Bloomberg to help the news organization verify his holdings.
• (Politico) The fallout from the hack of the federal court database system PACER continues.
• (Reuters) Reuters has a detailed report out about Meta’s artificial intelligence policies, from large language model chatbots inviting people to real addresses to enabling these technical models to engage with minors using language that seems to be more suitable for people who aren’t minors. Some of these provisions were changed after Reuters asked about them, the news organization reported.
• (New York Magazine) This is a lengthy and bonkers deep dive into two individuals accused of kidnapping an Italian crypto investor in New York. It is well worth your time to read.

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See ya’ll next week!