Terra Founder Do Kwon Facing 12 Years in Prison at Sentencing

Years after Terra's $40 billion collapse shook the foundations of crypto in 2022, founder Do Kwon is finally about to face his U.S. sentencing in New York court.

Judge Paul Engelmayer will deliver his ruling Thursday in what has been a more muted court affair relative to the crypto cases of the past. Kwon and his attorneys have argued for a five-year sentence. Prosecutors in their final submission argued for a 12-year sentence.

Kwon pleaded guilty to conspiracy and fraud charges in August after accepting a plea deal with prosecutors, and had earlier faced a maximum sentence of up to 130 years when he was first extradited to the U.S. from Montenegro.

In his sentencing submission, Kwon apologized to those who lost funds in the Terra collapse and accepted "full responsibility" for the failure of the Terra ecosystem.

"I am deeply sorry for letting down the many users, builders and investors who put their faith in me. They gave me an once-in-a-lifetime opportunity to build a better financial infrastructure for the future, and I repaid that gift with a failure of historic proportions that wreaked havoc on their savings and reputations," he wrote.

For the first time, Kwon also addressed many of the new facts that came to light since the Securities and Exchange Commission won its trial against Terra last year, and since Coinage first covered the Terra collapse in 2022.

Central to the charges Kwon has pleaded guilty to include not disclosing the intervention from Jump Crypto when Terra's UST stablecoin broke from its intended peg in 2021. Jump purchased significant sums of UST on the open market to effectuate UST's re-pegging, but neither Jump, nor Kwon, nor Terra publicly disclosed it. Public posts from all parties mostly mentioned the ordeal as proof that Terra's algorithmic stability mechanism had functioned properly.

"May 2021 was sold and marketed as a successful experiment and a sole win for the stability mechanism, and that was wrong," Kwon wrote. "I misled many investors into believing UST was a lot less experimental than it was, and made them unwitting participants in the ultimate failure of UST in May 2022 ... The Terra community was owed the truth and full picture from me, not Jump, and it is I who failed to deliver."

In their ensuing submission, prosecutors also addressed the same point, arguing that the apology rings hollow now.

“He shifts blames and minimizes his own role in UST's near-depegging in May 2021… Let it be clear: the half-truths, evasion, and outright lies were Kwon's," prosecutor said. "They cannot be diminished or excused by shifting blame to the Trading Firm."

The government's sentencing memo argued that a 12-year sentence may do more to deter similar actions from other actors in the future, pointing to the 12-year sentence of Celsius founder Alex Mashinsky as a fair precedent.

Ahead of Thursday's sentencing, Judge Engelmayer asked both sides for clarity around the plea deal agreement both sides struck earlier this year, including whether a potential additional sentence for Kwon in South Korea could have any impact on what sentence is handed down in U.S. court. Coinage previously reported that prosecutors had agreed to support Kwon's transfer application to South Korea only after he serves 50% of his U.S. prison sentence.

Responding to Judge Engelmayer's questions in a Wednesday memo, prosecutors noted that Kwon is being credited for 17 months served in Montenegro prison while he awaited the extradition battle between the U.S. and South Korea.

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Disclosure: Terraform Labs was one investor among many in Trustless Media, the production company behind Coinage.

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