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Author: Zhao Ying, Wall Street News
According to a report in the Financial Times on Friday,Cryptocurrency entrepreneur Do Kwon was sentenced to 15 years in prison on two counts of fraud, even longer than prosecutors requested.The collapse of the TerraUSD and Luna tokens controlled by the 34-year-old South Korean caused investors to lose more than $40 billion, becoming one of the most serious cases involving monetary losses in the history of U.S. federal prosecutions.
New York federal judge Paul Engelmayer said in handing down the sentence: “This is a fraud of epic, generational proportions.In the history of federal prosecutions, few cases have been more serious than the monetary damage you caused.“The prosecutor originally requested a 12-year sentence, but the judge ultimately gave a heavier sentence.
Kwon admitted in a New York court this summer that he knowingly defrauded investors who purchased securities issued by his cryptocurrency group, Terraform Labs.Prosecutors described their actions as having a “devastating” impact, with some victims committing suicide and causing families to be torn apart due to their losses.The collapse of Terra Group also triggered a chain reaction that eventually led to the collapse of Sam Bankman-Fried’s exchange FTX and triggered a “cryptocurrency winter” that lasted until early 2023.
Wearing a yellow prison uniform and handcuffs, Kwon received applause from supporters as he walked into the courtroom on Thursday, a sign that the cryptocurrency figure has retained some influence even after pleading guilty.
Judge says he has “almost mystical” control over investors
Judge Engelmayer said in handing down the sentence that Kwon had “almost mystical” control over thousands of Terra investors, many of whom were like “cult followers who are still awake”.
Kwon apologized to his victims before sentencing, saying he hoped his mistake would “prevent other cryptocurrency founders from being in the position I am in today.”He broke down in tears as he thanked his former Terra colleagues, some of whom were in the courtroom.
Kwon’s lawyer, Sean Hecker, a partner at Hecker Fink, told the Financial Times after the hearing that his client “expressed genuine regret for the pain he has caused and is focused on continuing to try to make amends.”
Investors suffered heavy losses and some people are living on the streets
The court heard from multiple victims.A 58-year-old woman said she invested $81,000 in Luna tokens and ended up with only $13 left.She said she is currently homeless and living on the streets of Tbilisi, Georgia.
Prosecutors alleged in the January indictment that Kwon co-founded the now-bankrupt Terraform Labs and “orchestrated a scheme to defraud cryptocurrency buyers” and built a “financial world” that was “built on lies, manipulation and deception.”
Kwon has gained notoriety for publicly mocking critics of his company’s so-called algorithmic stablecoin.The stablecoin is designed to be fungible with the associated token Luna, which is worth $1.He once boasted that Terra “will remain stable until the end of the human era.”
Crash triggers market ripple effects
Prosecutors said the collapse of Terraform Labs in May 2022 caused hundreds of thousands of investors to lose more than $40 billion and triggered a chain collapse in the cryptocurrency market, eventually leading to the collapse of the FTX exchange and the “cryptocurrency winter” that extended to early 2023.
Falling U.S. interest rates and Trump’s industry-friendly policies have helped the market rebound since late last year.But the recent sell-off has wiped out more than $1 trillion in value from thousands of the most actively traded tokens, and fears of another prolonged downturn have resurfaced.
The core of the case is how Kwon, with the help of outside trading companies, covered up Terra’s crisis in May 2021.Prosecutors noted that these events, if made public, could have given buyers of its cryptocurrencies a preview of the flaws that ultimately led to the collapse.Kwon admitted to misleading Terra token investors, making them “unwitting participants” in the company’s dramatic collapse in May 2022, when the company’s stablecoin decoupled from its sister token.
Absconded from Singapore to Montenegro and was eventually extradited
When South Korea announced criminal charges against Kwon in September 2022, he was in Singapore, and then fled to Serbia on a private plane and then to Montenegro.He was arrested in Montenegro while trying to travel to the UAE using a fake passport.
Kwon was extradited to the United States from Montenegro in December.He said he was almost completely cut off from the outside world during his almost two-year imprisonment in Montenegro.
The trial also exposed prosecutorial errors. Victims were given a short period of time to submit statements, resulting in 315 letters from victims pouring in in about 24 hours before the trial.
In August, Kwon pleaded guilty to two counts of fraud.Prosecutors noted that Kwon was “tweeting disparaging” critics “hours” before the Terra coin crashed.
