Korean Entrepreneur Sentenced for Fraud in Cryptocurrency Case
Do Kwon, a prominent figure in the cryptocurrency world, was handed a 15-year prison sentence by a federal judge in New York on Thursday. He was led into the courtroom with a downcast demeanor, appearing thinner and wearing a bright yellow prison jumpsuit that contrasted sharply with his serious expression.
Kwon recently pleaded guilty to defrauding investors who bought crypto coins created by his company, Terraform Labs. Notably, in May 2022, a sudden collapse occurred, causing around $40 billion in value to vanish, which severely impacted the crypto market and resulted in the downfall of several companies.
U.S. prosecutors noted the extensive nature of Kwon’s fraudulent activities, stating in a formal commentary that “the scope of Mr. Kwon’s fraud was vast and permeated virtually every aspect of Terraform’s purported business.” They emphasized that his falsehoods led to significant economic turmoil.
During his court appearance, Kwon accepted complete responsibility for his actions. Getting emotional, he thanked former colleagues and supporters who were present, with lawyers beside him offering comfort.
The charge connected to Kwon’s plea could have resulted in a sentence of up to 25 years. Prior to the hearing, prosecutors recommended a 12-year sentence, but Chief Justice Paul Engelmayer concluded that a harsher penalty was necessary to deter similar fraud in the future.
Engelmayer used a striking analogy in court: “This lawsuit will remind us of what happens when you commit fraud,” he said. He cautioned that future offenders could face significant prison time as well.
After the ruling, Kwon was visibly emotional, nearly in tears as he left the courtroom, the chains clanking as he walked.
Stablecoin Gone Awry
Kwon initiated Terraform in 2018 alongside Daniel Shin. A couple of years later, they proposed a stablecoin called TerraUSD (UST), designed to maintain a value pegged to the U.S. dollar through an algorithm linked to LUNA, another coin from their company. The system aimed to provide incentives for traders to maintain the dollar parity.
Noel Acheson, an analyst who previously worked in crypto, remarked last year that the concept was both interesting and innovative, drawing the attention of many in the industry.
However, come May 2022, the market mechanisms failed, leading to a situation where traders sold large amounts of UST, breaking its peg. This triggered widespread panic, and the value of UST plummeted towards nothing, erasing around $40 billion from the market. In a now-famous tweet, Kwon attempted to reassure investors, promising to infuse more capital into the system, but ultimately, the values of UST and LUNA fell drastically.
