US federal prosecutors are seeking a 12-year prison sentence for Do Kwon, the founder of Terraform Labs, the company behind the UST algorithmic stablecoin that spectacularly imploded more than three years ago.
The request, filed Thursday before a judge for the Southern District of New York, comes after Kwon pleaded guilty earlier this year. He admitted to defrauding investors and manipulating cryptocurrency markets through a series of false claims about his company’s blockchain products.
While Kwon’s defense team requested a five-year sentence, citing time served in Montenegro and possible prosecution in South Korea, U.S. officials argued that only a lengthy prison sentence would reflect the scale of the fraud and deter similar conduct.
“Terraform’s 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 the rubble and, while in hiding, dissembled 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 plot justify a substantial prison sentence,” they added. “In fact, the circumstances of the crime alone would weigh strongly in favor of a maximum sentence.”
Prosecutors said in the filing that losses related to Terraform’s collapse 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 Accident
The collapse of the Terraform ecosystem, which reached over $50 billion in market value at its peak, was a pivotal moment for the brutal crypto market crash in 2022.
At the center of the ecosystem was the UST algorithmic stablecoin, which was backed by a balancing mechanism pegged to the LUNA crypto token, rather than more tangible assets like 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 misleading metrics to maintain its appearance of success, according to court documents.
Kwon’s sentencing will take place on December 11 in Manhattan federal court.
