Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.

The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.

On August 12, 2025, the United States Attorney’s Office for the Southern District of New York announced that Do Hyeong Kwon, the co-founder and former CEO of Terraform Labs PTE, Ltd., pled guilty in Manhattan federal court to charges arising from one of the largest financial frauds in cryptocurrency history. Kwon admitted to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud, and a separate count of wire fraud before U.S. District Judge Paul A. Engelmayer.

According to the SDNY, Kwon and Terraform Labs marketed their blockchain-based ecosystem as a fully decentralized, self-sustaining digital economy, anchored by an algorithmic stablecoin designed to maintain a one-dollar peg. In reality, prosecutors alleged, the system was fundamentally unstable and was propped up through deceptive measures, including secret coordinated trades meant to create the appearance of market stability.

The government emphasized that these misrepresentations drew tens of billions of dollars from global investors, many of whom suffered devastating losses when Terraform’s flagship products collapsed. U.S. Attorney Jay Clayton says Kwon used the allure of cryptocurrency to orchestrate “one of the largest frauds in history” and credited the FBI, along with international law enforcement partners, for securing Kwon’s arrest and extradition.

Kwon now faces a maximum statutory penalty of decades in prison, though his actual sentence will be determined by the court. Sentencing is scheduled for December 11, 2025. The SDNY highlighted the case as a warning to digital asset promoters that technological innovation does not shield fraudulent conduct from accountability under U.S. law.

Kwon’s guilty plea underscores the heightened legal consequences that flow from misrepresenting the functionality or economic underpinnings of a crypto-asset. In Do Kwon’s case, prosecutors pointed to specific ommissions—such as misrepresenting the effectiveness of the Terra protocol by concealing the role of a high-frequency trading firm in restoring the TerraUSD peg—that were material to investors’ understanding of risk. Under U.S. securities and commodities laws, such omissions can constitute fraud even when accompanied by truthful statements elsewhere.

For digital asset issuers and platforms, this means that marketing claims, white papers, and public statements must be scrutinized with the same rigor as SEC filings, ensuring that all material facts, including behind-the-scenes interventions, are accurately and completely disclosed. The failure to do so not only erodes market confidence but also exposes executives and developers to criminal charges that carry decades-long prison terms.

Do Kwon’s apprehension and extradition from Montenegro highlight the increasingly borderless nature of cryptocurrency enforcement. Although Terraform Labs was headquartered in Singapore and incorporated offshore, and Kwon himself was traveling on a falsified Costa Rican passport, U.S. authorities successfully coordinated with Interpol and foreign law enforcement to secure his return to face charges in New York.

This case reinforces that jurisdiction in financial crime matters often hinges less on the physical location of the defendant and more on the impact of the alleged conduct on U.S. markets and investors. For global crypto entrepreneurs, the takeaway is clear: physical relocation or complex corporate structuring will not insulate actors from U.S. prosecution when American investors or markets are affected, particularly given the increasing willingness of foreign jurisdictions to cooperate with U.S. extradition requests in high-profile fraud cases.

The guilty plea in the Terraform case is poised to serve as a precedent in how regulators, prosecutors, and courts assess algorithmic stablecoins, token pledge arrangements, and other complex crypto products. For years, the industry has operated in a gray zone, arguing that innovative token mechanics fall outside existing securities or commodities frameworks. Kwon’s conviction directly challenges that position, signaling that courts are willing to treat misrepresented algorithmic stability mechanisms as fraudulent under traditional financial statutes.

This precedent is likely to raise the due diligence bar for not only issuers, but also venture capital investors, exchanges, and service providers who list or promote such assets. Going forward, market participants can expect heightened scrutiny from regulators and counterparties, with the Terraform outcome becoming a touchstone in risk assessments and deal evaluations across the digital asset sector.

At Kelman PLLC, we regularly advise clients on the full spectrum of cryptocurrency, blockchain, and fintech regulatory matters, including securities and commodities compliance, enforcement defense, and cross-border investigations. Our team understands the unique risks associated with digital asset offerings, stablecoin projects, and algorithmic finance, and we tailor our guidance to help clients navigate these evolving legal landscapes while minimizing exposure.

If you have questions about how this case or similar enforcement actions could impact your business—or if you want to ensure your disclosures and compliance framework meet the highest standards—contact us today for a free consultation.

This article originally appeared at Kelman.law.

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