Crypto king Do Kwon jailed for 15 years over $40bn stablecoin fraud

Disgraced 34-year-old cryptocurrency mogul Do Kwon was sentenced on Thursday to 15 years in prison for a fraud that wiped out $40bn (€34.1bn) in value, devastated charities, and drove some investors to the brink of suicide.

Kwon, a Stanford graduate known by some as “the cryptocurrency king”, apologised after listening as victims — one in court and others by telephone — described the toll his scam had on their lives, including wiping out nest eggs and people's entire retirement funds.

Judge Paul A. Engelmayer said at a daylong sentencing hearing in a Manhattan federal court that the government’s recommendation of 12 years in prison was “unreasonably lenient” and that the defence’s request for five years was “utterly unthinkable and wildly unreasonable”.

Kwon faced a maximum sentence of 25 years in prison.

“Your offense caused real people to lose $40 billion (€34.1bn) in real money, not some paper loss,” Engelmayer told Kwon, who sat at the defence table in a yellow jail suit.

The judge called it “a fraud on an epic, generational scale” and said Kwon had an “almost mystical hold” on investors and caused incalculable “human wreckage”.

More than the combined losses in FTX and OneCoin cases

Kwon pleaded guilty in August to fraud charges stemming from the collapse of Terraform Labs, the Singapore-based firm he co-founded in 2018. The loss exceeded the combined losses from FTX founder Sam Bankman-Fried and OneCoin co-founder Karl Sebastian Greenwood’s frauds, prosecutors said.

Engelmayer estimated there may have been a million victims.

Terraform Labs had touted its TerraUSD as a reliable “stablecoin” — a kind of currency typically pegged to stable assets or currencies to prevent drastic fluctuations in prices.

But prosecutors say it was an illusion backed by outside cash infusions that came crumbling down after it plunged far below its $1 peg.

The crash devastated investors in TerraUSD and its floating sister currency, Luna, triggering “a cascade of crises that swept through cryptocurrency markets.”

Kwon tried to rebuild Terraform Labs in Singapore before fleeing to Montenegro, a coastal country in the Balkans, on a false passport, prosecutors said.

He was detained there in March 2023 and will be credited for the 17 months he spent in jail before being extradited to the US.

Kwon agreed to forfeit over $19mn (€16.2mn) as part of his plea deal. His lawyers argued his conduct stemmed not from greed, but hubris and desperation.

Engelmayer rejected his request to serve his sentence in his native South Korea, where he also faces prosecution and where his wife and 4-year-old daughter live.

“I have spent almost every waking moment of the last few years thinking of what I could have done differently and what I can do now to make things right,” Kwon told Engelmayer.

Hearing from victims, he said, was “harrowing and reminded me again of the great losses that I have caused”.

Victims say losses ruined their lives, harmed charities

One victim, speaking by telephone, said his wife divorced him, his sons had to skip college and he had to move back to Croatia to live with his parents after TerraUSD’s crash evaporated his family’s life savings.

Another said he has to “live with the guilt” of persuading his in-laws and hundreds of nonprofit organisations to invest.

Stanislav Trofimchuk said his family’s investment plummeted from $190,000 (€161,977) to $13,000 (€11,082) — “17 years of our life, gone” during what he described as “two weeks of sheer terror”.

Chauncey St. John, speaking in court, said some nonprofits he worked with lost more than $2 million (€1.7mn) and a church group lost about $900,000 (€767,263). He and his wife are saddled with debt and his in-laws have been forced to work well past their planned retirement, he said.

Nevertheless, St. John said he forgives Kwon, adding “I pray to God to have mercy on his soul”.

A prosecutor read excerpts from some of more than 300 letters submitted by victims, including a person identified only by initials who lost nearly $11,400 (€9,718) while juggling bills and trying to complete college.

Kwon had made Terra seem like a safe place to stash savings, the person said.

“To some that is just a number on a page, but to me it was years of effort,” the person wrote. “Watching it evaporate, literally overnight, was one of the most terrifying experiences of my life.”

“What happened was not an accident. It was not a market event. It was deception,” the person added, imploring the judge to “consider the human cost of this tragedy”.

Kwon created an “illusion of resilience while covering up systemic failure,” assistant US attorney Sarah Mortazavi told Engelmayer. “This was fraud executed with arrogance, manipulation and total disregard for people.”