Crypto Entrepreneur Do Kwon Gets 15-Year Prison Sentence — WSJ
By Vicky Ge Huang and Alexander OsipovichDisgraced crypto tycoon Do Kwon was sentenced to 15 years in prison on Thursday after pleading guilty to fraud in connection with the $40 billion crash of his TerraUSD and Luna coins in 2022.Kwon, who had asked for a sentence of five years, pleaded guilty to two criminal counts in August, including one count of wire fraud and one on conspiracy to commit wire, securities and commodities fraud. In exchange for Kwon's plea, federal prosecutors agreed to not seek a prison sentence of more than 12 years, and dropped seven other counts against him.In their closing arguments, prosecutors said Kwon was driven by greed and arrogance, and had lied repeatedly about the efficacy and safety of his products. He deflected blame, they argued, and grossly mischaracterized the severity of his misconduct once his deception was exposed. The defense, however, sought to portray Kwon as a brash entrepreneur who genuinely aimed to build useful technology but unfortunately succumbed to the "fake it until you make it" mentality.Kwon, clad in a yellow prison jumpsuit, maintained a calm demeanor throughout the hearing. He apologized for the harm he inflicted and pleaded for leniency, citing his desire to see his family. He choked up while thanking his supporters, some of whom were present at the hearing and applauded as he entered the courtroom."The blame should be pointed at me," said Kwon.At the start of Thursday's hearing, Judge Paul A. Engelmayer said he was concerned whether it was fair and appropriate to proceed with the sentencing given the late arrival of some 315 victim letters. Kwon said he hasn't had the chance to physically read the letters, though he and his lawyers decided to proceed with the sentencing.Kwon's sentencing is a curtain call for the brash entrepreneur who was among the loudest and most influential cheerleaders for digital currencies during the 2021-22 crypto boom. Born in South Korea and educated at Stanford University, Kwon founded the crypto firm Terraform Labs in 2018.He promoted TerraUSD, a so-called algorithmic stablecoin, as the future of money, and was notorious for deriding his critics in social-media posts — until the collapse of his coins triggered a daisy chain of crises that eventually ushered in what the industry calls its crypto winter.At its peak in the spring of 2022, the total market value of all cryptocurrencies associated with Terraform exceeded $50 billion, prosecutors said. Their subsequent failures hurt hundreds of thousands of investors worldwide, some of whom lost their life savings nearly overnight when TerraUSD lost its peg to the dollar.Kwon, who had been based in Singapore, vanished from public view several months later, just as South Korean authorities issued a warrant for his arrest. Officials eventually tracked him down in Serbia. He was arrested at an airport in neighboring Montenegro in March 2023 while trying to board a private jet to Dubai using a fake Costa Rican passport. He fought against extradition to the U.S. until Montenegro transferred custody to U.S. authorities last year.In a letter to Judge Engelmayer to support his bid for a lighter sentence, Kwon expressed remorse for bashing critics who had warned about TerraUSD's depegging risk. "In my insane arrogance, all I felt then was annoyance at the naysayers who seemed only interested in slowing me down...I resorted to childish memes and made fun of my online opponents to silence them," he said.After the 2022 crash, Kwon said he was like a "zombie" and came close to suicide. He said his lawyers advised him to flee to Serbia, where he hoped to re-establish Terraform Labs.Prosecutors, in a letter seeking a tougher sentence, questioned the sincerity of Kwon's apologies and noted his history of scoffing at the authorities. They cited his private remarks after the crash, including a call where he told an associate that he could cut a deal with South Korean prosecutors to get six months in jail or "tell them to f — off." Kwon also said on the call that he had been looking into "countries that can offer political protection and things like that."The letters shed light on an episode at the heart of Kwon's guilty plea: TerraUSD's short depeg in May 2021, in which the coin fell below $1 but recovered after it was secretly propped up by Chicago-based Jump Trading, then a big backer of Kwon. As part of his guilty plea, Kwon admitted he failed to disclose Jump's intervention. In a Nov. 26 letter to the judge, Kwon said he had desired transparency but was blocked from talking publicly about the rescue. Prosecutors countered that Kwon was trying to shift blame.TerraUSD was designed to maintain a price of $1. However, unlike traditional stablecoins backed by Treasurys, cash and cash-equivalent assets, TerraUSD relied on financial engineering to maintain its peg.Despite warnings from some crypto executives about the inherent risk of a "death spiral," small investors poured billions of dollars into the tokens, drawn by promised annual returns approaching 20% and enthusiastic endorsements from prominent backers such as Galaxy Digital founder Mike Novogratz.In May 2022, TerraUSD permanently lost its peg, and its sister coin Luna plummeted to near-zero within days. The collapse ended the previous bull market and triggered a cascade of company failures across the sector, a fallout that ultimately culminated in the bankruptcy of Sam Bankman-Fried's crypto exchange FTX.Write to Vicky Ge Huang at [email protected] and Alexander Osipovich at [email protected]