Crypto News: US Seeks 12-Year Sentence for Do Kwon Over ‘Colossal’ Terra/Luna Fraud

Key Insights

• US prosecutors are pushing for at least 12 years in prison, arguing Do Kwon’s Terra/Luna scheme caused “colossal” losses.
• Kwon’s legal team wants a five-year sentence, citing his three years already served in Montenegro, and a looming 40-year potential sentence in South Korea.
• Prosecutors say Kwon is minimizing the gravity of his crimes, insisting his “half-truths and lies” justify a substantial prison term.

Crypto news recently received a stark reminder of its most painful chapter. Prosecutors in the Southern District of New York filed a sentencing memo that requested a 12-year prison term for Do Kwon, the co-founder of Terraform Labs.

They accused him of masterminding a fraud that erased more than $40 billion of investor wealth. TerraUSD and Luna imploded in May 2022.

The scale of the loss still stands as the single largest wipeout in cryptocurrency history, eclipsing even the FTX scandal that followed months later.

The government’s sentencing memorandum, filed that day in United States v. Kwon (Case No. 1:23-cr-00151-PAE), seeks to finalize a $19.3 million forfeiture judgment.

It highlighted Kwon’s “deliberate fraud” in misrepresenting the algorithmic stablecoin UST as “mathematically impossible” to depeg, leading to catastrophic losses for millions.

As sentencing looms for December 11 before Judge Paul A. Engelmayer, this development underscores regulatory reckoning in crypto news.

Do Kwon’s guilty plea on August 12 to conspiracy to defraud and wire fraud counts signals the end of a saga that triggered “Crypto Winter.”

Ongoing civil remedies total $4.7 billion against Terraform and $204 million personally for Kwon, per SEC orders from April 2024.

For the market, now valued at $3.1 trillion per CoinMarketCap on December 5, it reinforces compliance costs.

Which potentially deters algorithmic stablecoin innovation while boosting scrutiny on reserves like Tether’s $183 billion USDT.

Lies That Built and Destroyed a $50 Billion Empire

Between 2018 and 2022, Do Kwon sold the world a vision that felt almost too clean to be true. Terraform Labs, he said, had cracked the code for decentralized money.

TerraUSD would stay glued to a dollar no matter what, thanks to a clever arbitrage loop with Luna. No banks, no reserves, just math. People loved the idea, and billions poured in.

The truth, though, was a lot messier. In a blunt 48-page memo filed this week, Assistant U.S. Attorney Nicholas Chiuchiolo peeled back the curtain.

Every time the peg wobbled, the “algorithm” got a quiet, off-the-books rescue. The numbers don’t lie, and neither does the paper trail.

Whenever the peg started to slip, Kwon’s team quietly stepped in with off-chain rescues. The most glaring example came in May 2021, when a single trading firm injected $150 million to restore the dollar level, a move never disclosed to the public.

The same pattern repeated elsewhere. Mirror Protocol, marketed as fully decentralized, actually ran under tight central control.

The much-hyped partnership with Korean payments app Chai turned out to be smoke and mirrors: only 0.1% of transactions ever touched the Terra blockchain.

The rest were plain old centralized ledger entries dressed up to look on-chain.

What investors saw as a breakthrough in algorithmic stability was, in the government’s view, a carefully managed illusion — one that finally shattered in May 2022.

The May 2022 depeg saw UST plummet to pennies and LUNA from $116 to near zero, erasing $40 billion overnight and igniting $1 trillion in global crypto losses, the document states.

According to the prosecutors,

Victim impacts from the related SEC civil trial, referenced in the memo, included retail investor Nader George losing $372,000 of a $400,000 stake — “my whole body was shaking thinking what have I done to my family” — and institutional player Republic Capital forfeiting $35.9 million.

The whole mess feels straight out of the Enron playbook. Back in April 2024, a New York jury slapped Terraform Labs with a $4.47 billion disgorgement order plus extra penalties.

Do Kwon got hit personally for $204 million. So far he’s coughed up just $7 million. The rest has been tied up in appeals and delays, including a chunk of PYTH tokens he was supposed to hand over.

By the time the forfeiture finally cleared in May 2025, those tokens had lost half their value—down to about $75 million.

What looked like a massive penalty on paper turned into a fraction of the original bite.

Kwon’s Conduct: Flight, Resistance, and Post-Crash Dissembling

Prosecutors painted Kwon as unrepentant. After the collapse, he fled to Montenegro in September 2022 using a forged Costa Rican passport, resisting extradition for 28 months while posting defiant tweets blaming “market forces.”

In interviews, Kwon claimed the 2021 depeg was a “natural” test passed, omitting the secret bailout. The memo states,

“Kwon fled from the wreckage… dissembled in interviews and tweets, blamed others.”

Kwon’s August 12 guilty plea to Counts One (conspiracy to defraud) and Four (wire fraud) from the March 2023 indictment avoided a trial, and he faces up to 40 years in South Korea for related charges.

The plea waived restitution for millions of victims due to “impracticability” under 18 U.S.C. § 3663A(c)(3), opting for DOJ remission of forfeited assets.

Comparisons sharpen the case: Losses dwarf Samuel Bankman-Fried’s $8 billion ($25-year sentence), Celsius’ Alex Mashinsky’s $2 billion (pending), and BlockFi’s $1.2 billion fallout.

“In just a few years, Kwon caused losses that eclipsed those caused by Samuel Bankman-Fried… combined,” prosecutors argued.

Crypto News Lessons: Stablecoin Scrutiny and Market Safeguards

This sentencing push arrives amid heightened stablecoin oversight. Tether’s $183 billion USDT — 70% of the $260 billion market — faced NYAG fines in 2021 for reserve lapses.

However, it butcomplied with audits showing 100% backing by December 2024, per its attestation.

Circle’s USDC, at $35 billion, integrated Chainlink proofs post-Terra, reducing depeg risks to 0.01% in stress tests, per Circle’s November 2025 report.

The collapse halted 80% of DeFi TVL growth in 2022, per DefiLlama historicals. It spurred EU’s MiCA rules effective June 2024, mandating 1:1 reserves for stablecoins over €200 million.

U.S. clarity awaits: The Clarity for Payment Stablecoins Act, passed Senate July 2025, caps non-bank issuers at 5% systemic risk.

Kwon misappropriated $300 million from Luna Foundation Guard reserves, funneling it through 100+ addresses across chains, the memo details, a tactic echoing FTX’s commingling.

DOJ’s remission process, under 28 C.F.R. Part 9, prioritizes uncompensated victims from the $19.3 million forfeiture.

Judge Engelmayer’s December 11 hearing will weigh the 12-year ask against Kwon’s 5-year proposal.

Prosecutors dismissed it as “utterly insufficient,” citing deterrence needs in a sector with a $3.1 trillion cap. Kwon’s Montenegro detention since March 2023 counts toward time served.

This crypto news caps a three-year probe: Indictment March 23, 2023; arrest March 2023; extradition September 2024. Parallel SEC suit yielded $4.7 billion remedies, with appeals pending.

For markets, it cements accountability. Post-Terra, algorithmic stablecoins fell 95% to $500 million TVL, per CoinGecko

December 5, shifting to fiat-backed like USDT. As Kwon faces judgment, crypto news evolves from wild innovation to guarded maturity.