Terraform Labs founder Do Kwon sentenced to 15 years over $40 billion Terra-Luna collapse: Inner City Press

Terraform Labs founder Do Kwon was sentenced to 15 years in prison for his role in the collapse of the Terra and Luna tokens — an implosion that wiped out $40 billion in 2022. 

Kwon received the sentencing on Thursday in the Southern District of New York, according to reporting from Inner City Press. That surpassed the sentencing amount prosecutors has asked for earlier. Prosecutors argued Kwon should get 12 years in prison, citing his previous misconduct and the sheer size of the fraud, while Kwon's lawyers pushed for just five years.

U.S. District Judge Paul Engelmayer said Kwon "chose to lie" and "chose poorly," according to reporting from Inner City Press in the courtroom. 

Kwon was criminally charged in March 2023 with conspiracy to commit fraud, commodities fraud, wire fraud, securities fraud, conspiracy to commit fraud, and engaging in a conspiracy to commit market manipulation and money laundering. Kwon later pleaded guilty in August to wire fraud and conspiracy to defraud.

The charges stem from the unraveling of Terra USD — an algorithmic stablecoin that uses market incentives via algorithms to maintain a stable price. Terra was linked to Luna, a governance token, using a faulty stabilization mechanism. Terra USD's disintegration provoked a contagion event that brought down several crypto entities in 2022. Prosecutors say Kwon lied about the risks and stability associated with the tokens. 

Without the plea deal, Kwon faced a maximum sentence of 135 years in prison if convicted on all nine charges. After agreeing to plead guilty to two charges, Kwon faced a maximum 25-year penalty. Prosecutors also previously pushed for a $19 million forfeiture.

Lawyers for Kwon, countered that a prison term of up to five years was sufficient, arguing that the crash was partly due to coordinated trades by third-party firms exploiting vulnerabilities, citing academic papers and reports from Chainalysis. 

Kwon's legal saga has played out internationally. In March 2024, he was arrested in Montenegro for traveling with forged travel documents. At the time, both the U.S. and South Korea had issued warrants for his arrest, which led to a back-and-forth over where he would be extradited. Eventually, he was extradited to the U.S. in December 2024. 

Kwon may face additional legal challenges in South Korea. According to CoinDesk, Kwon must serve at least half of this sentence before he can apply for a transfer to South Korea, and will reportedly receive credit for the 17 months he served in a Montenegrin prison.