Terraform Labs co-founder Do Kwon requests five-year prison sentence in US trial

The co-founder of Terraform Labs, Do Kwon, has formally requested a US judge to limit his prison sentence to five years, arguing that this would be “more than sufficient” punishment in a fraud case tied to the collapse of the Terra ecosystem, which erased nearly $40 billion in investor value.

He made this request after pleading guilty to conspiracy and wire fraud in August, thereby avoiding a trial following his extradition from Montenegro. Notably, Montenegro is where authorities had arrested and convicted Kwon for using a fake passport while fleeing charges in South Korea.

Kwon’s defense team urges court to consider reducing his prison sentence

His defense team argued that Kwon had already served almost three years in jail, with more than half of this time spent under severe conditions in Montenegro.

They also noted that Terraform’s co-founder already suffered repercussions for his actions. Meanwhile, it is worth noting that Kwon had also agreed to relinquish over $19 million and certain properties as part of the plea agreement.

As they await the judge’s consideration of their argument, the lawyers reminded the court that their client is still on trial in South Korea on similar charges, where prosecutors are seeking a 40-year prison sentence. 

Reports indicated that Kwon’s sentencing is scheduled for December 11 and will be conducted by Paul Adam Engelmayer, an American lawyer and jurist serving as a United States District Judge of the US District Court for the Southern District of New York. Before then, the government is required to present its own sentencing recommendation soon. 

Following his decision to confess to his guilt, Kwon read from a prepared statement acknowledging that he had willingly collaborated with others to deceive Terraform Labs’s cryptocurrency buyers and had ultimately defrauded them. “What I did was wrong, and I want to apologize for my actions. I accept full responsibility,” he added.

Terraform’s TerraUSD collapses due to a fraud incident 

Regarding the collapse of Terraform’s TerraUSD, reports noted that this collapse was significant, leading to major disruptions in the crypto market in spring 2022. It also resulted in the downfall of the FTX cryptocurrency exchange. 

Kwon’s guilty plea halted a trial scheduled for next year before US District Judge Engelmayer. The court decided to charge him in 2023 and sent him to the US in January. 

To serve as a warning to any individual with such a motive, US prosecutors implied that they would aim for a maximum sentence of 12 years in this plea deal. Under US law, the highest penalties for conspiracy are five years, and for wire fraud are twenty years.

Initially, the 33-year-old encountered a total of nine charges. The US court ruled that once he completed half of his sentence, he would be allowed to finish the remaining agreed-upon time in prison in South Korea. However, this only applied as long as he strictly adhered to the rules of his plea agreement and met the requirements for a transfer program.

Meanwhile, the US Securities and Exchange Commission filed a lawsuit in 2024 alleging that Terraform and Kwon, who owned 92% of the company, committed civil fraud. This led to a two-week trial in New York, during which a jury concluded that Kwon and Terraform had deceived investors.

Following this information, analysts noted that this outcome is a bad sign for Kwon’s chance of winning against criminal charges. 

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