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Cryptocurrency entrepreneur Do Kwon has been sentenced to 15 years in prison on two counts of fraud, after the collapse of the TerraUSD and luna tokens he controlled caused investors to lose more than $40bn.
Kwon admitted in a New York court this summer that he had knowingly defrauded those who bought securities issued by his crypto group Terraform Labs.
The South Korean tycoon was applauded by supporters as he walked into the courtroom in a yellow prison suit and handcuffs on Thursday, a sign of how the crypto figure has continued to attract backing even after pleading guilty to fraud.
Prosecutors said in an indictment in January that Kwon, who co-founded the bankrupt Terraform Labs, “orchestrated schemes to defraud purchasers of cryptocurrencies” and constructed a “financial world” that was “built on lies and manipulative and deceptive techniques”.
Government lawyers said Kwon’s actions had a “devastating” impact, with some victims taking their own lives and families falling apart as a result of the losses. Prosecutors had sought a 12-year sentence.
The court heard from victims, including a 58-year-old woman who said she invested $81,000 in the luna token and lost all but $13 of it. She said she was now homeless and living on the streets in Tbilisi, Georgia.
Kwon gained notoriety for publicly ridiculing critics of his company’s so-called algorithmic stablecoin, UST, which was designed to be fungible with $1 worth of its linked token, luna. He once boasted that UST “will remain stable until the age of man expires”.
Terra’s failure in May 2022 had cost tens of thousands of investors more than $40bn, prosecutors said.
It also set into motion a dramatic slump for the broader crypto market that culminated in the collapse of Sam Bankman-Fried’s exchange FTX and the onset of a “crypto winter” that extended into early 2023.
Declining US interest rates and President Donald Trump’s industry-friendly policies have helped the market rebound. But worries about another prolonged downturn have resurfaced amid a sell-off that has wiped more than $1tn from the value of thousands of the most actively traded tokens.
In August, Kwon pleaded guilty to two fraud counts. He had been extradited to the US in December last year from Montenegro — where he said he was kept in almost complete isolation for two years. He had fled for Serbia from Singapore on a private jet shortly after South Korean authorities announced criminal charges against him in September 2022.
The 34-year-old said he accepted “full responsibility” for Terra’s failure in a letter to Judge Paul Engelmayer ahead of Thursday’s sentencing.
Over 13 pages, Kwon described how he had been raised in a spartan household “to be highly functioning without a clear function” before eventually finding his calling in programming at Stanford University.
“Deeply impacted” by Satoshi Nakamoto’s Bitcoin white paper, he began work on what became Terra in late 2017.
The intervention of an outside trading firm prevented a crisis at Terra four years later. Kwon admitted he hid “the existence of such help” and misled investors who became “unwitting participants” in the company’s dramatic implosion in May 2022, when its stablecoin unpegged from its sister token.
Prosecutors noted that Kwon had “tweeted to denigrate” his critics “literally hours” before Terra’s tokens crashed.
Writing in November, Kwon said: “The community looked to me to know the path, and I in my hubris led them astray.”
The hearing went ahead despite mis-steps by prosecutors, which resulted in Kwon’s victims being given little time to make submissions to the court, with a flood of 315 victim letters arriving in the roughly 24 hours before the hearing. “You need to do better,” the judge told a government lawyer.
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