Do Kwon seeks five-year US sentence in TerraUSD fraud case

Terraform Labs co-founder Do Kwon asked U.S. District Judge Paul Engelmayer to limit his prison term to five years for his role in the 2022 collapse of the TerraUSD stablecoin, which erased about $40 billion in value. Sentencing is scheduled for Dec. 11 in Manhattan federal court.

In a defense filing late Wednesday, his lawyers urged the court to weigh the time he has already spent in custody and other penalties. Under his plea agreement, prosecutors agreed not to seek more than 12 years, a ceiling the filing calls “far greater than necessary” given his detention to date.

Kwon has been incarcerated for almost three years, with “more than half that time in brutal conditions in Montenegro,” according to the filing. He was arrested there and convicted of using a fake passport while a fugitive from charges in South Korea before being extradited to the U.S.

He pleaded guilty in August to conspiracy and wire fraud, avoiding a U.S. trial. As part of the plea deal, Kwon agreed to forfeit more than $19 million and certain properties.

The defense noted that he still faces prosecution in South Korea for the same conduct, where prosecutors are seeking a 40-year prison term, and asked the court to consider potential additional punishment overseas when imposing a sentence. The government is expected to file its recommendation ahead of the hearing.

Terraform’s algorithmic stablecoin was designed to hold its $1 peg through arbitrage with a sister token, Luna, rather than cash reserves. When confidence evaporated in May 2022 and UST de-pegged, the mechanism spiraled, wiping out retail investors’ savings, particularly in South Korea, and triggering broader scrutiny of so-called decentralized finance projects.

Prosecutors say Kwon secretly arranged for a trading firm to prop up UST’s price during an earlier wobble while publicly claiming the system had stabilized itself. The episode, later revealed in civil and criminal filings, is central to their argument that he misled investors about both the technology and the risks.