US federal prosecutors are seeking a 12-year prison sentence for Do Kwon, the founder of Terraform Labs, the company behind the algorithmic stablecoin UST that spectacularly imploded more than three years ago.
The request, filed Thursday with the Southern District of New York judge, comes after Kwon pleaded guilty earlier this year. He admitted to defrauding investors and manipulating crypto markets through a series of false claims about his company’s blockchain products.
While Kwon’s defense team asked for a five-year sentence, citing time served in Montenegro and potential prosecution in South Korea, U.S. officials argued that only a lengthy prison term would reflect the scale of the fraud and deter similar behavior.
“The Terraform market crash triggered a cascade of crises that swept cryptocurrency markets and contributed to what has since become known as “Crypto Winter,” prosecutors wrote. “Kwon fled from the rubble and, while in hiding, covered up in interviews and tweets, blamed others for what had happened, and, once found, resisted extradition.”
“Kwon’s misconduct, the consequences of his crime, and his reaction to the discovery of his scheme all warrant a substantial prison sentence,” they added. “Indeed, the circumstances of the offense, alone, would weigh heavily in favor of a maximum sentence.”
Prosecutors said in the filing that losses from the Terraform crash exceeded those caused by the collapse of Sam Bankman-Fried’s FTX, Alex Mashinky’s Celsius and OneCoin combined.
Bankman-Fried is currently serving a 25-year prison sentence, while Mashinsky was sentenced to 12 years in prison for fraud.
Terra Luna Crash
The collapse of the Terraform ecosystem, which had a market value of over $50 billion at its peak, was a pivotal moment for the crypto market’s sharp downturn in 2022.
At the center of the ecosystem was the algorithmic stablecoin UST, which was backed by a balancing mechanism tied to the LUNA crypto token, instead of more tangible assets such as short-term US Treasuries, like most current stablecoins.
At the time, Kwon described Terraform’s offerings as decentralized and technologically sound. However, the project relied on backdoor deals, hidden business activities and deceptive measures to maintain its appearance of success, according to court filings.
Kwon’s sentencing will take place Dec. 11 in Manhattan federal court.
