U.S. federal prosecutors are pursuing a 12-year prison sentence for Do Kwon, the founder of Terraform Labs, the company responsible for the algorithmic stablecoin UST that collapsed dramatically over three years ago.
The request, submitted on Thursday to the judge in the Southern District of New York, follows Kwon’s guilty plea earlier this year. He confessed to defrauding investors and manipulating the cryptocurrency markets with a series of false statements regarding his company’s blockchain products.
While Kwon’s defense team requested a five-year sentence, citing time served in Montenegro and potential prosecution in South Korea, U.S. officials argued that only a significant prison term would adequately reflect the magnitude of the fraud and prevent similar actions in the future.
“The Terraform market crash triggered a series of crises that spread through cryptocurrency markets and led to what has come to be known as ‘Crypto Winter,'” the prosecutors stated. “Kwon fled from the aftermath and, while in hiding, misrepresented details in interviews and on social media, shifted the blame onto others, and, once apprehended, resisted extradition.”
“Kwon’s wrongdoing, the aftermath of his actions, and his response to the unearthing of his scheme all justify a substantial prison term,” they continued. “Indeed, the particulars of the offense, in isolation, would strongly support a maximum sentence.”
Prosecutors indicated in the filing that losses linked to the Terraform crash exceeded those from the failures of Sam Bankman-Fried’s FTX, Alex Mashinsky’s Celsius, and OneCoin combined.
Bankman-Fried is currently serving a 25-year prison sentence, while Mashinsky received a 12-year sentence for fraud.
Terra-Luna crash
The failure of the Terraform ecosystem, which reached over $50 billion in market value at its highest point, marked a crucial turning point for the severe downturn in the crypto market in 2022.
At the core of the ecosystem was the algorithmic stablecoin UST, which was supported by a balancing mechanism tied to the LUNA token, rather than more tangible assets like short-term U.S. Treasuries, as seen with most current stablecoins.
At that time, Kwon depicted Terraform’s products as decentralized and technically sound. However, court filings reveal that the project depended on backdoor agreements, concealed trading activities, and misleading metrics to sustain its facade of success.
Kwon’s sentencing is scheduled for December 11 in federal court in Manhattan.
