Kwon Do-hyeong, the TerraForm Labs founder and key figure in the cryptocurrency "Terra·Luna" crash, was sentenced to 15 years in prison by a U.S. court. It is the legal judgment that came about 2 years and 7 months after he inflicted astronomical losses of more than $40 billion (about 59 trillion won) on investors worldwide. The U.S. court held him strictly accountable for concealing algorithmic flaws and deceiving investors, which led to a market collapse.
Judge Paul Engelmayer of the U.S. District Court for the Southern District of New York on the 11th (local time) sentenced Kwon, who was indicted on fraud and conspiracy charges, to 15 years in prison at a sentencing hearing. It is heavier than the "at least 12 years in prison" that U.S. prosecutors had previously sought. Kwon's defense team had requested a sentence of five years or less, citing his detention in Montenegro and the fact that he must face investigation in Korea, but the court rejected the request. Judge Engelmayer determined that Kwon triggered a chain crisis in the global cryptocurrency market and committed a serious crime that wiped out the assets of countless investors.
While issuing TerraUSD (UST) and Luna (LUNA), Kwon promoted that the coins would automatically maintain a $1 value through an algorithm. But when Terra's price fell below $1 in May 2021, he propped up the price artificially by secretly mobilizing a third-party trading firm (a high-frequency trading company) to buy large quantities of the coin, rather than relying on the automatic recovery algorithm. According to the prosecution's indictment, Kwon deceived investors by hiding this intervention and saying, "The Terra protocol (algorithm) restored the price." In the end, in 2022 the value of Terra and Luna crashed, converging toward zero. This led to a "domino effect" that cascaded into the bankruptcy of the cryptocurrency hedge fund Three Arrows Capital (3AC) and the exchange FTX, among other industrywide collapses.
Kwon was indicted in January on nine charges, including securities fraud, wire fraud, and conspiracy to commit price rigging. He consistently denied the charges but in August changed his stance and pleaded guilty to two counts, including conspiracy to commit fraud and wire fraud. During the trial, Kwon said, "I made statements that were false and misleading about the reasons the peg (value link) was restored," and admitted, "It was my fault not to disclose the role of the trading firm."
Separately from the criminal punishment, financial liability for damages was also finalized. Kwon and TerraForm Labs reached a $4.55 billion (about 6.7 trillion won) settlement with the U.S. Securities and Exchange Commission (SEC). Kwon personally agreed to pay $80 million (about 118 billion won) in civil penalties. Kwon will be permanently barred from all work related to cryptocurrency transactions.
Kwon is also under indictment by Korean prosecutors on charges including violations of the Financial Investment Services and Capital Markets Act. Under the terms of a plea bargain (sentence reduction conditioned on a guilty plea) reached before the ruling, the U.S. Department of Justice agreed not to oppose a request to transfer Kwon to a third country if he applies after serving half his sentence in the United States. This means that after serving about seven to eight years in a U.S. prison, he could be extradited to Korea to serve the remainder of his sentence.
Reuters and other foreign media said, "Kwon Do-hyeong is one of several 'coin tycoons' who faced legal judgment after the 2022 cryptocurrency collapse," and analyzed, "This ruling shows how strictly U.S. law enforcement applies the yardstick to the opacity and fraud in the cryptocurrency market." Kwon's lawyer, David Patton, did not make any immediate comment after the sentencing.