(Dec 12): Terraform Labs Pte Ltd co-founder and onetime fugitive Do Kwon was sentenced to 15 years in prison for the fraud that led to the company’s US$40 billion collapse in 2022 and triggered a series of cascading crises in the cryptocurrency world.
Kwon, 34, was sentenced at a hearing Thursday in New York by US District Judge Paul Engelmayer, who called his crimes “a fraud of epic generational scale.” The decision caps a long fight by the US to prosecute the crypto entrepreneur and extradite him from Montenegro, where he was imprisoned for using a fake passport. He still faces fraud charges in his native South Korea.
The prison term for Kwon comes at a time when the Trump administration has weakened enforcement in crypto markets. On Oct 23, President Donald Trump pardoned Binance founder Changpeng Zhao, who was convicted of failing to maintain an effective anti-money laundering programme at the world’s largest cryptocurrency exchange.
Engelmayer imposed a longer sentence for Kwon than the 12 years sought by prosecutors, saying it would be too lenient given the harm he’d caused victims. “In the history of federal prosecutions very few cases have caused more monetary harm than you did,” the judge told Kwon.
The government argued that Kwon’s lies to customers contributed to the “crypto winter” of 2022 and the failure of Sam Bankman-Fried’s FTX.
Victims and friends of Kwon crowded into the Manhattan courtroom. Supporters applauded him as he was being led in by marshals, wearing a bright yellow prison jumpsuit, with chains on his wrists and ankles.
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Kwon apologised to the victims who’d lost money in Terraform’s collapse, saying “The blame should be pointed at me for everyone’s suffering.”
He added, “I don’t argue nor will I ever argue that my conduct was industry standard and market practice,” as some of the victims said in their letters. “If they were, they were bad industry standards and market practices and I as one of the market leaders should be personally responsible.”
‘Wildly unreasonable’
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Kwon’s lawyers asked that he be sentenced to no more than five years in prison, arguing his crimes were motivated not by greed but a desire to prop up Terraform’s TerraUSD stablecoin. The judge called that request “wildly unreasonable.”
Kwon pleaded guilty in August to conspiracy and wire fraud under an agreement in which prosecutors agreed to ask for no more than 12 years. As part of the deal, Kwon agreed to forfeit US$19.3 million and some properties that prosecutors claimed he gained from the fraud.
Prosecutors said they will support Kwon serving the second half of his sentence in South Korea if he abides by the terms of his plea deal and qualifies under a transfer programme. They also told the judge that they will not seek restitution from Kwon for the investors who lost a total of US$40 billion, saying the prospect of determining each of their losses would be too complex.
Kwon faces a possible trial in South Korea after he serves his US sentence. Engelmayer said Kwon’s sway was so powerful that many of his investors still believed in him even after he pleaded guilty. He said some of their letters were like “reading the words of cult followers.”
Engelmayer said he had received letters from 315 victims all over the world, many reporting they’d lost homes, retirement savings, money for medical expenses and college funds to Kwon’s fraud.
The judge credited Kwon for pleading guilty and accepting responsibility for his crimes. He said the 12-page letter Kwon wrote expressing remorse and accepting responsibility for the fraud was “thoughtful” and “beautifully written.”
When Kwon was led onto an elevator outside court, one supporter exclaimed “Stay strong, Do! Keep your head up!”
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Kwon, a 2015 graduate of Stanford University, returned to his native South Korea where he started up the company that would become Terraform Labs in 2017 with co-founder, Daniel Shin. In May 2022, TerraUSD’s value began to drop below the dollar, setting off a collapse of the coin, which was pegged to the US currency. Kwon was criminally charged in South Korea in September 2022.
The collapse was followed by attempts to locate Kwon and then to extradite him after he was arrested in Montenegro in 2023 while travelling under a fake passport. He was charged by the US and sent to that country after spending almost two years in the Balkan nation, where he was jailed.
Kwon and Terraform, 92% of which was held by Kwon, were found liable in a civil fraud suit by the US Securities and Exchange Commission in 2024, while Kwon was still being detained in Montenegro. The SEC presented evidence that Jump Crypto put money into TerraUSD to defend its dollar peg, undercutting Terraform claims that the peg didn’t require outside intervention.
A Manhattan jury found that investors were misled about the stability of TerraUSD, which Kwon and Terraform claimed was algorithmically pegged to the US dollar. They also found that Kwon and Terraform falsely said that Chai, a popular Korean payment application, used Terraform’s blockchain technology to make transactions.
The case is US v Kwon, 23-cr-0151, US District Court, Southern District of New York (Manhattan).
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