4 min read
Terraform Labs founder Do Kwon was sentenced to 15 years in prison on Thursday, following the $40 billion collapse of UST and Luna more than three years ago.
Before the sentence was handed down, U.S. District Judge Paul Engelmayer described that figure as “eye-popping,” even for the Southern District of New York, where some of the biggest financial crimes in history have been prosecuted, per Inner City Press.
The 33-year-old South Korean native, who pleaded guilty to a series of fraud charges in August, committed an “unusually serious” fraud, Judge Engelmayer said, adding: “You chose to lie.”
Judge Engelmayer described now-infamous assurances that Kwon made on X, formerly Twitter, including “Deploying more capital - steady lads,” as ultimately devastating for investors. He also highlighted how Kwon said he doesn’t “debate the poor.”
At one point, Judge Engelmayer compared Kwon to the leader of a cult, who traded on victims’ trust. Thursday’s punishment was delivered in a Manhattan courtroom, where victims first spoke about how the collapse of Terra's ecosystem impacted their lives.
A man from Ukraine described to Judge Engelmayer, for example, how he lost nearly $200,000 as Kwon’s algorithmic stablecoin buckled in May 2022. Kwon’s affirmations gave him confidence that 17 years worth of money saved was “safe,” the man added, despite the risk ultimately came with 20% yields offered by Terra’s Anchor Protocol.
Federal prosecutors had asked Judge Engelmayer to give Kwon a 12-year sentence, after arguing in court that Kwon constructed a financial world built on lies. He used manipulative and deceptive techniques to mislead investors about elements of Terraform’s business.
Kwon’s attorneys requested that his time be limited to five years behind bars. As part of his plea deal, Kwon is set to forfeit $19 million, as well as some of his properties.
Kwon, sporting a yellow jumpsuit, expressed remorse to Judge Engelmayer, echoing elements of a previous letter in which he claimed responsibility for causing widespread pain.
“The blame should be pointed at me,” Kwon said. “I failed to operate the system in the right way. I want to prevent other crypto founders from standing where I am right now.”
At the same time, Kwon said it had been three years since he’d seen his family, while expressing a desire to be able to serve time in his home country. Prosecutors have agreed to let Kwon serve the second half of his sentence in South Korea.
Before the sentence was handed down, Judge Engelmayer expressed frustration with the prosecutors for submitting a batch of letters from the Terra’s community last night. The flurry of feedback caused him to cancel “a celebratory judicial function,” he added.
The failure of Terra’s ecosystem was an industry-shaking moment in 2022, which prompted a series of blowups that culminated in FTX’s bankruptcy months later. Instead of being backed by liquid assets, Terra’s UST stablecoin relied on trading incentives to maintain a $1 peg—but it ultimately failed.
Last April, Terraform Labs and Kwon were found liable on civil fraud charges. Months later, they agreed to pay $4.5 billion as part of a massive settlement agreement with the U.S. Securities and Exchange Commission. The next day, the company moved to dissolve.
At the time, Kwon sat in custody in the Balkan country of Montenegro, amid a months-long extradition fight. A year before, he was arrested while trying to travel with a forged passport.
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