U.S. federal prosecutors are seeking a 12-year prison sentence for Terraform Labs founder Do Kwon. Terraform Labs is the company behind the algorithmic stablecoin UST, which crashed dramatically more than three years ago.
The request was made to a judge in the Southern District of New York on Thursday after Quan pleaded guilty earlier this year. He admitted to deceiving investors and manipulating the cryptocurrency market through a series of false claims about his company’s blockchain products.
Although Kwon’s defense team requested a five-year sentence on the grounds that he would serve time in Montenegro and face possible prosecution in South Korea, U.S. officials argued that only a longer prison term would reflect the scale of the fraud and deter similar conduct.
“The Terraform market crash set in motion a series of crises that engulfed the cryptocurrency market and led to what became known as the ‘Crypto Winter.’ Kwon escaped from the rubble and, while in hiding, covered up the truth in interviews and tweets, blaming others for what happened, and once discovered, he refused extradition,” prosecutors wrote.
“Kwon’s misconduct, the consequences of his crimes and his reaction to the discovery of his plans all merit a significant sentence,” they added. “Indeed, the circumstances of the crime alone strongly favor the maximum sentence.”
Prosecutors said in the filing that the losses caused by the Terraform collapse exceeded the losses 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 sentence, while Masinski is serving a 12-year sentence for fraud.
Terra-Moon Crash
The collapse of the Terraform ecosystem, which at its peak had a market capitalization of over $50 billion, was a key moment in the severe downturn in the cryptocurrency market in 2022.
At the heart of the ecosystem is the algorithmic stablecoin UST, which is backed by a balancing mechanism tied to the cryptographic token LUNA, rather than a tangible asset such as a short-term U.S. Treasury bill like most current stablecoins.
At the time, Kwon described Terraform’s products as decentralized and technically sound. However, according to court documents, the project relied on backdoor protocols, hidden trading activity and deceptive metrics to maintain its appearance of success.
Kwon is scheduled to be sentenced on December 11 in Manhattan federal court.
