Cryptocurrency mogul Do Kwon sentenced to 15 years in prison

South Korean encryption Prosecuted businessman and 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 appeared solemnly as US Marshals escorted him into the courtroom, his head bowed and his cheeks sunken as if he had lost a significant amount of weight. He was wearing a bright lime prison jumpsuit over a long-sleeved shirt, with handcuffs around his waist and hands.

In August, Kwon pleaded guilty to defrauding investors who purchased cryptocurrencies issued by his company Terraform Labs. In May 2022, the sudden collapse of these currencies wiped out $40 billion and led to the collapse of the cryptocurrency economy, leading to the bankruptcy of many other companies.

“Kwon’s fraud was massive in scope, permeating virtually every aspect of Terraform’s purported business,” US prosecutors wrote in a recent lawsuit. “His rampant lies have left a trail of financial devastation in their wake.”

He had the opportunity to address the court on Thursday, and Kwon said he alone bears responsibility for the fraud. After thanking his former co-workers and supporters, some of whom gathered in the public gallery, he became emotional. His lawyers rubbed his back, left and right.

The crimes to which Kwon pleaded guilty carry a maximum penalty of 25 years in prison. Before the hearing, prosecutors filed a motion for a 12-year prison sentence. But the presiding judge, Paul Engelmayer, ruled that a more punitive sentence was needed in order to deter future cryptocurrency scammers.

“This case is going to be a reminder of the bad crash and what’s going on,” Engelmayer told the courtroom. “To the next Do Kwon, if you commit fraud, you will lose your freedom for a long time.”

As he was placed in an elevator outside the courtroom after receiving the verdict, Kwon appeared to be holding back tears. The chain hanging between his feet shook on the ground.

Unstable currency

Kwon started Terraform in 2018, alongside co-founder Daniel Chen. Two years later, the company announced plans to launch TerraUSD (UST), a stablecoin whose value is supposedly tied to the US dollar via an algorithm. The algorithm will effectively link UST to a second coin issued by LUNA. One dollar worth of LUNA can be exchanged for one dollar worth of UST, and vice versa. If the value of UST falls below $1, traders will be incentivized to buy LUNA until the target value is restored.

“It was a very interesting and new mechanism,” Noelle Acheson, an analyst who previously worked at cryptocurrency brokerage Genesis, told WIRED last year. “A lot of smart people think it will work.”

In May 2022, the price stabilization system began to take effect. When traders sold large amounts of UST, it fell off its peg to the dollar, triggering panic selling that pushed the price practically to zero. In a now-infamous tweet, Kwon attempted to halt the sell-off, writing: “Deploying more capital – Steady guys.” But the value of UST and LUNA plummeted, wiping $40 billion from the market.