South Korean cryptocurrency entrepreneur and prosecuted fraudster Do Kwon was sentenced to 15 years in prison on Thursday by a US federal judge in the Southern District of New York.
Kwon cut a solemn figure as he was escorted into the courtroom by U.S. Marshals, his head bowed and his cheeks sunken as if he had lost significant weight. He wore a bright lemon-colored prison jumpsuit over a long-sleeved shirt, with cuffs around his waist and hands.
In August, Kwon pleaded guilty to defrauding investors who bought cryptocurrencies issued by his company Terraform Labs. In May 2022, the abrupt collapse of those coins wiped out $40 billion and sent the crypto economy into a tailspin that has bankrupted countless other companies.
“Kwon's fraud was colossal in scope and permeated virtually every facet of Terraform's alleged operations,” U.S. prosecutors wrote in a recent court filing. “His rampant lies left a trail of financial destruction.”
When Kwon was given the opportunity to address the court on Thursday, he said he was solely responsible for the fraud. After thanking his former colleagues and supporters, some of whom had gathered in the public gallery, he became emotional. His lawyers, to his left and right, rubbed his back.
The crimes to which Kwon pleaded guilty carry a maximum prison sentence of 25 years. Before the hearing, prosecutors had asked for a prison sentence of 12 years. But the chairman, Paul Engelmayer, ruled that a heavier penalty was necessary to deter future crypto fraudsters.
“This case will be there as a reminder of the bad news and what is happening,” Engelmayer said in court. “For the next Do Kwon: if you commit fraud, you will lose your freedom for a long time.”
As he was bundled into an elevator outside the courtroom after receiving his sentence, Kwon appeared to be holding back tears. The chain hanging between his feet rattled against the floor.
Not-so-stable currency
Kwon started Terraform in 2018, together with co-founder Daniel Shin. Two years later, the company announced plans to launch TerraUSD (UST), a stablecoin whose value would be pegged to the US dollar through an algorithm. The algorithm would effectively link UST to a second coin issued by the firm, LUNA. A dollar of LUNA can be exchanged for a dollar of UST, and vice versa. If the UST were to ever fall below $1, traders would be incentivized to buy LUNA until the target value recovers.
“It was an intriguing and very new mechanism,” Noelle Acheson, an analyst who previously worked at crypto brokerage Genesis, told WIRED last year. “A lot of smart people believed it would work.”
In May 2022, the price equilibrium system broke out. When traders sold off large amounts of UST, it slipped from its dollar peg, triggering a panic sell-off that drove the price to virtually zero. In a now infamous tweet, Kwon tried to stop the sell-off, writing, “by deploying more capital – stable guys.” But the value of UST and LUNA plummeted, wiping $40 billion from the market.
