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 entered the courtroom, his head bowed. 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.”
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.
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.
The contagion from the incident contributed to the collapse of hedge fund Three Arrows Capital, followed by crypto lenders Voyager Digital, BlockFi, and Genesis. In a roundabout way, it created the conditions for the destruction of crypto exchange FTX, by causing lenders to recall hundreds of millions of dollars in loans to FTX’s sister company. The sister company repaid the loans using FTX customer funds, deepening the hole in the exchange’s balance sheet.
After the crash, Kwon fled his penthouse in Singapore for the Balkans. In March 2023, he was arrested by authorities in Montenegro after trying to use a fake passport to board a plane to the UAE, which does not have an extradition treaty with the US. A fight then ensued over which country—the US or Kwon’s native South Korea—would be allowed to extradite him.
