TerraUSD, Luna Founder Do Kwon, Who Caused the Epic $40B Crypto Crash in 2022, Jailed for 15 Years

The founder of TerraUSD and Luna cryptocurrencies, Do Kwon, was sentenced to 15 years in prison earlier this month. He was charged with fraud and eventually pleaded guilty.

TerraUSD and Luna lost all their value overnight, triggering a $40 billion (£29.7 billion) crash that led to the collapse of the cryptocurrency industry and major firms in 2022.

Fraud on An Epic Scale

Victims had claimed that Kwon misused their trust to convince them that their investments were safe. The victims said the crash wiped out their nest eggs and wrecked their lives, with one of them even contemplating suicide after his father lost his entire retirement savings.

A prosecutor read excerpts from over 300 letters submitted by victims, including a person who lost nearly $11,400 (£8,486) while juggling bills and trying to finish college.

'To some that is just a number on a page, but to me it was years of effort,' the person wrote in the letter. 'Watching it evaporate, literally overnight, was one of the most terrifying experiences of my life.'

Judge Paul Engelmayer said at a sentencing hearing in Manhattan federal court that Kwon's offense caused people to lose $40 billion. The judge stated that the fraud was done on an epic, generational scale, adding that Kwon's actions caused incalculable 'human wreckage.'

Kwon's Activities Led to Losses More Than the FTX Crash

Kwon pleaded guilty in August to charges related to the Terraform Labs collapse. He co-founded the Singapore-based company in 2018. The losses were more than the combined losses from the FTX and OneCoin crashes. Judge Engelmayer estimated there may have been up to a million victims.

Terraform Labs portrayed TerraUSD as a reliable stablecoin, and Kwon marketed his crypto aggressively for years. His coins were worth over $50 billion (£37.2 billion) at their peak. Kwon even named his daughter Luna in honour of his 'greatest invention.' However, prosecutors said it was all an illusion shaped by cash infusions.

His empire collapsed in May 2022 as Luna's price fell to nearly zero dollars, dragging TerraUSD down with it. The crash triggered 'a cascade of crises that swept through cryptocurrency markets,' draining investor accounts and destroying startups that were building businesses using Kwon's technology.

A Web of Lies

Prosecutors said Kwon lied about the stability of his crypto tokens and participated in 'deceptive conduct to pump up' their value. Kwon also falsely claimed that a Korean payment processor was carrying out major transactions using his technology,

The Stanford graduate attempted to rebuild Terraform Labs in Singapore before fleeing to Serbia, but was arrested while trying to board a flight to Dubai using a fake passport. He was extradited to the US soon after.

He agreed to forfeit over $19 million (£14.1 million) under a plea deal. While his lawyers argued his conduct stemmed not from greed but from desperation, Engelmayer rejected his request to serve his sentence in his native South Korea, where he also faces prosecution.

Kwon created an 'illusion of resilience while covering up systemic failure,' Assistant US Attorney Sarah Mortazavi told Engelmayer. 'This was fraud executed with arrogance, manipulation, and total disregard for people.'

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