Do Kwon Sentenced to 15 Years in Prison for Terra’s $40B Collapse

Do Kwon, the co-founder of Terraform Labs, has been sentenced to 15 years in prison due to his involvement in fraudulent activities related to the collapse of TerraUSD, which resulted in an estimated loss of $40 billion in 2022. Kwon pleaded guilty to conspiracy and wire fraud charges, leading to this significant penalty.

Key Takeaways

Do Kwon received a 15-year prison sentence for his role in the TerraUSD collapse.
He pleaded guilty to charges of conspiracy and wire fraud.
A federal judge dismissed requests for both a 12-year and a 5-year sentence as unreasonable.
Judge Engelmayer described the fraud as “epic” and emphasized its generational impact.
Kwon orchestrated schemes to mislead investors regarding TerraUSD and Luna coins, culminating in a massive financial disaster.

Do Kwon jail

Do Kwon’s Sentencing Details

Do Kwon, the co-founder of Terraform Labs, has been sentenced to 15 years in prison due to his involvement in a major cryptocurrency fraud linked to the collapse of TerraUSD, a situation that led to a staggering loss of $40 billion in 2022.

The South Korean national entered a guilty plea in August, facing charges of conspiracy and wire fraud associated with Terraform Labs. During a court hearing in Manhattan, U.S. District Judge Paul A. Engelmayer issued the sentence on Thursday.

Judge's Ruling on Sentencing Recommendations

Federal prosecutors had initially advocated for the maximum 12-year sentence allowed under Kwon's plea deal. In contrast, Kwon's defense team argued for a 5-year sentence, enabling him to return to South Korea to confront criminal charges there.

According to Inner City Press, which provided live updates of the proceedings, Judge Engelmayer criticized the prosecutors' recommendation, labeling the 12-year plea “unreasonable.” He further stated that a 5-year sentence “would be so implausible.”

“15 years is the least I can impose,” the judge declared. “It is the judgment of the court that you are to serve a sentence of 15 years, with credit for time served in the U.S.”

The Impact of the $40B Crypto Collapse

Judge Engelmayer referred to the situation as an “epic” fraud, labeling it as “fraud on an epic, generational scale.” He emphasized that few fraud cases in federal history have caused as much harm.

From 2018 through 2022, Kwon devised schemes to deceive investors who purchased cryptocurrencies created by Terraform. The firm had publicly launched its stablecoin, TerraUSD (UST), pegged at 1:1 with the U.S. dollar, alongside Luna coins.

In May 2021, TerraUSD lost its $1 peg, prompting Kwon to issue false information regarding the mechanisms for restoring that peg. He also failed to disclose the involvement of Jump Trading in maintaining the stablecoin's value during a significant depeg event in 2021.

TerraUSD, designed to maintain its $1 peg, ultimately collapsed in May 2022, leading to massive financial losses and triggering a broader crisis within the cryptocurrency sector.

“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,” Kwon acknowledged in August. “What I did was wrong.”

The fallout from the collapse resulted in criminal charges in both the U.S. and South Korea, with both nations pushing for Kwon’s extradition. Kwon was arrested in Montenegro in March 2023 for using forged documents and was later extradited to the United States in December.