US federal prosecutors are requesting a 12-year prison sentence for Do Kwon, the co-founder of Terraform Labs, in connection with the $40 billion collapse of the TerraUSD stablecoin in 2022. The sentencing hearing is scheduled for next week in the US District Court for the Southern District of New York.
This request comes after Kwon pleaded guilty in August to wire fraud and conspiracy to commit commodities fraud, securities fraud, and wire fraud. As part of the plea deal, prosecutors agreed to seek no more than 12 years of imprisonment. However, Kwon's defense team has argued for a significantly lighter sentence, requesting a maximum of five years.
In a court filing, Kwon's lawyers stated that a sentence exceeding five years "would be far greater than necessary". They argue that his case differs from typical fraud prosecutions involving Ponzi schemes or outright theft, as Kwon intended to build a revolutionary crypto system. Kwon claims his misconduct stemmed from "arrogance" and false statements made about the project's stability and capabilities.
Kwon himself has expressed remorse, stating he takes "full responsibility" for the failure of the Terra ecosystem. He admitted to getting "swept up in my own overconfidence" and making misrepresentations that he now deeply regrets. Kwon also expressed regret over not disclosing Jump Crypto's assistance in restabilizing UST during its de-pegging event in 2021. He stated that he was asked not to publicly discuss Jump's involvement after the markets stabilized, but believes that transparency was necessary for investors to make informed decisions.
Prosecutors, however, argue that a 12-year sentence is warranted, asserting that Kwon's actions caused losses exceeding those of other infamous figures in financial fraud, including Sam Bankman-Fried (SBF) of FTX, Alex Mashinsky of Celsius Network, and Ruja Ignatova of OneCoin. They claim that Kwon lied to investors about the stability of Terraform's crypto assets, leading to billions in losses when the system failed and the value of its tokens plummeted in May 2022.
The case against Do Kwon has drawn significant attention due to the massive scale of the TerraUSD collapse and its impact on the cryptocurrency market. The stablecoin's failure triggered a broader market downturn and raised concerns about the stability and regulatory oversight of digital assets.
Judge Paul A. Engelmayer is presiding over the case. The US Attorney's Office directed a victims' notice motion to Judge Engelmayer on January 6, 2025.
The plea agreement includes a provision regarding international prisoner transfer. If Kwon is eligible and applies to transfer his sentence to his home country of South Korea, the US Attorney's Office has agreed to support the application, provided Kwon does not breach the plea agreement.
