Judge jails crypto founder for 15 years after “safe” stablecoin wipes out long-term savings
A “safe” crypto product that helped erase retirement savings and charity funds on a massive scale has landed Terraform Labs co-founder Do Kwon a 15-year US prison term for fraud.
US District Judge Paul Engelmayer sentenced Kwon, 34, to 15 years for his role in the US$40bn collapse of Terraform Labs’ TerraUSD “stablecoin” and its sister token Luna, calling it “a fraud on an epic, generational scale,” according to The Canadian Press.
The judge said Kwon caused “real people to lose US$40bn in real money, not some paper loss.”
Terraform Labs marketed TerraUSD as a reliable “stablecoin” that would hold a US$1 value, but prosecutors said it was an illusion propped up by outside cash infusions.
Reuters said that when TerraUSD slipped below its US$1 peg in 2021, Kwon told investors a computer algorithm called “Terra Protocol” fixed the problem, while he had actually arranged for a high-frequency trading firm to secretly buy millions of dollars’ worth of the token to prop up its price.
Kwon pleaded guilty in August to conspiracy to defraud and wire fraud and admitted: “I made false and misleading statements about why it regained its peg by failing to disclose a trading firm’s role in restoring that peg. What I did was wrong.”
The human impact highlighted why the case matters for long-term savers and asset stewards.
One victim told the court his family’s investment fell from US$190,000 to US$13,000 — “17 years of our life, gone” in “two weeks of sheer terror,” as reported by The Canadian Press.
Another said nonprofits he worked with lost more than US$2m and a church group lost about US$900,000, forcing his in-laws to work well past their planned retirement.
A victim who lost nearly US$11,400 while trying to complete college wrote that Terra “seem[ed] like a safe place to stash savings” and that watching the money “evaporate, literally overnight” was “one of the most terrifying experiences” of their life.
The same person wrote: “What happened was not an accident. It was not a market event. It was deception.”
Prosecutors said the Terraform collapse triggered “a cascade of crises that swept through cryptocurrency markets.”
They added that the losses exceeded the combined fraud-related losses linked to FTX founder Sam Bankman-Fried and OneCoin co-founder Karl Sebastian Greenwood, according to The Canadian Press.
Bloomberg reported that prosecutors argued Kwon’s deception helped fuel the 2022 “crypto winter.”
Kwon agreed to forfeit more than US$19m as part of his criminal plea, The Canadian Press said.
Reuters reported that he separately agreed in 2024 to pay US$80m as a civil fine and accept a ban on crypto transactions in a US$4.55bn settlement with the US Securities and Exchange Commission.
The case is listed as US v. Kwon, 23-cr-0151, in the US District Court for the Southern District of New York.
