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South Korean crypto entrepreneur and prosecuted fraudster Do Kwon was sentenced to 15 years in prison by a US federal judge in the Southern District of New York on Thursday.
Kwon cut a solemn figure as he was escorted into the courtroom by US Marshalls, his head bowed, his cheeks sunken as if he’d lost a significant amount of weight. He wore a bright lemon-colored prison jumpsuit over a long-sleeve shirt, with cuffs around his waist and hands.
In August, Kwon pleaded guilty to defrauding investors who purchased crypto coins 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 bankrupted numerous other companies.
“Kwon’s fraud was colossal in scope, permeating virtually every facet of Terraform’s purported business,” US prosecutors wrote in a recent court filing. “His rampant lies left a trail of financial destruction in their wake.”
Given the chance to address the court on Thursday, Kwon said he took sole responsibility for the fraud. After thanking his former coworkers 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 offenses to which Kwon pleaded guilty carry a maximum sentence of 25 years in prison. Before the hearing, prosecutors had petitioned for a twelve-year prison term. But the presiding judge, Paul Engelmayer, ruled that a more punitive sentence was required in order to deter future crypto fraudsters.
“This case will be there as a reminder of breaking bad and what happens,” Engelmayer told the courtroom. “To the next Do Kwon, if you commit fraud, you will lose your liberty 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 that hung between his feet rattled against the floor.
Not-So-Stablecoin
Kwon started Terraform in 2018, alongside cofounder Daniel Shin. Two years later, the company announced plans to launch TerraUSD (UST), a stablecoin whose value was supposedly pegged to the US dollar by way of an algorithm. The algorithm would effectively tie UST to a second coin issued by the firm, LUNA. A dollar’s worth of LUNA could be exchanged for a dollar’s worth of UST, and vice versa. If UST were to ever slip below $1, traders would be incentivized to buy LUNA until the target value was restored.
“It was an intriguing and very novel mechanism,” Noelle Acheson, an analyst who previously worked at the crypto brokerage Genesis, told WIRED last year. “Many smart people believed it would work.”
In May 2022, the price-balancing system belched. When traders sold large quantities of UST, it slipped from its dollar peg, leading to a panicked sell-off that drove the price practically to zero. In a now-infamous tweet, Kwon tried to stop the selloff, writing, “deploying more capital—steady lads.” But the value of UST and LUNA plummeted, wiping $40 billion from the market.
