Cryptocurrency entrepreneur Do Kwon was sentenced to 15 years in prison in the United States for two fraud crimes linked to the collapse of the TerraUSD and luna tokens, which resulted in losses of more than $40 billion for investors. The sentence was handed down by a federal judge in New York and exceeded the 12 years requested by prosecutors.
Announcing the ruling, Judge Paul Engelmayer said Kwon had committed “fraud on an epic and generational scale,” according to the Financial Times. The judge also said that the co-founder of Terraform Labs had an almost “mystical” influence over thousands of investors, compared to followers of a cult.
Kwon, 34, had pleaded guilty in August this year, admitting that he knowingly deceived buyers of crypto assets issued by the Terraform Labs group. Before the sentence was read, he apologized to the victims and said he hoped his mistakes would “prevent other crypto founders from being where I am today”, according to the Financial Times.
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According to the indictment filed in January, Kwon “orchestrated schemes to defraud cryptocurrency buyers” and built a financial system “based on lies and manipulative and deceptive techniques.” Prosecutors said the impact of the losses was devastating, with reports of broken families and even suicides among victims.
During the hearing, the court heard testimony from affected investors. One of the victims reported having invested US$81,000 in the luna token and only recovered US$13, leaving him to live on the streets in Tbilisi, Georgia.
The collapse of the Terra ecosystem occurred in May 2022 and involved the so-called TerraUSD algorithmic stablecoin, designed to maintain parity with the dollar. Kwon had publicly ridiculed critics of the model and even stated that the Earth “would remain stable until the end of humanity”, according to the Financial Times.
Authorities pointed out that Kwon concealed a previous Earth crisis, in May 2021, with support from an external trading firm. The disclosure of these problems, according to the indictment, could have alerted investors to structural flaws that culminated in the final collapse of the tokens.
The failure of Terraform Labs triggered a sequence of crashes in the crypto market, including that of the FTX broker, and contributed to the period known as “crypto winter”, which lasted until the beginning of 2023.
After the collapse, Kwon left Singapore, passed through Serbia and was arrested in Montenegro when he tried to travel with a false passport. He was extradited to the United States in December last year, after almost two years in detention in the European country.
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The hearing took place even after procedural flaws highlighted by the defense, which resulted in 315 letters from victims arriving at the court just around 24 hours before the sentencing session.
