US federal prosecutors are demanding 12 years in prison for Do Kwon, the founder of Terraform Labs, the company behind the algorithmic stablecoin UST, which imploded spectacularly more than three years ago.
The plea, filed Thursday with a judge in the Southern District of New York, comes after Kwon pleaded guilty earlier this year. He admitted to defrauding investors and manipulating the crypto 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 potential prosecution in South Korea, U.S. officials argued that only a long prison term would reflect the scale of the fraud and deter similar behavior.
“The Terraform market crash set off a cascade of crises that swept through cryptocurrency markets and contributed to what has since become known as ‘Crypto Winter,'” prosecutors wrote. “Kwon fled the wreckage and, while in hiding, was singled out 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 plan all warrant a significant prison sentence,” they added. “Indeed, the circumstances surrounding the offense, alone, would weigh heavily in favor of a maximum sentence.”
Prosecutors said in the suit that losses linked to 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 crashed
The collapse of the Terraform ecosystem, which reached over $50 billion in market capitalization at its peak, was a defining moment for the 2022 crypto market crash.
At the center of the ecosystem was the algorithmic stablecoin UST, which was backed by a balancing mechanism tied to the crypto token LUNA, rather than more tangible assets such as short-term US Treasuries, like most current stablecoins.
At the time, Kwon portrayed Terraform’s offerings as decentralized and technologically sound. However, the project relied on backdoor deals, hidden trading activity 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.
