Do Kwon, former DeFi star, is today at the heart of an unprecedented legal scandal. Less than two years after the collapse of Terra-Luna, which swallowed up $40 billion, he is trying to avoid a heavy sentence in the United States. His goal is to convince the courts to limit his sentence to five years in prison. Two weeks before its hearing, this request rekindles debates on the responsibility of crypto founders in the face of the devastating consequences of their projects.
In brief
- Do Kwon, ex-founder of Terraform Labs, is seeking a maximum sentence of 5 years in prison after pleading guilty in the United States.
- He is being prosecuted for fraud in connection with the collapse of the Terra-Luna ecosystem, which wiped out nearly $40 billion.
- His defense highlights the absence of personal enrichment, a major strategic error and pressures that were difficult to manage at the time.
- The fall of Terra is not only linked to Kwon, according to the defense, but also to market attacks coordinated by third parties.
A negotiated sentence: Do Kwon asks for a maximum of five years
In a 23-page court document filed this November 26 in New York federal court, Do Kwon's lawyers argue in favor of a maximum sentence of five years of incarceration.
The request comes after he pleaded guilty in August to two counts of fraud, linked to the collapse of the Terra-Luna ecosystem, which allegedly caused around $40 billion in losses. The defense's objective is to demonstrate that the overall circumstances of the case justify a sentence much lower than the twelve years envisaged by the public prosecutor.
As indicates it the letter: “the government’s proposal […] does not take into account all the circumstances which would justify a sentence not exceeding five years”.
Among the arguments put forward by the defense to justify this leniency, we find:
- The absence of personal enrichment: according to his lawyers, Kwon's actions were not motivated by greed, but by a combination of increasing pressures, linked to his status as the founder of a project that had gone out of control;
- A major strategic error: Kwon today admits to having failed to disclose an agreement with Jump Trading, intended to support UST during its destabilization in May 2021, a silence which he now considers misleading for investors;
- Early admission of guilt: by pleading guilty last August, Kwon expressed a form of responsibility, which the defense presents as an element of judicial cooperation;
- The complex context of the crash: the defense suggests that the collapse cannot be reduced to simple individual fraud.
This request comes as the sentence is expected on December 11.
Detention, shared responsibility and judicial perspectives
Do Kwon's defense was not limited to technical or economic considerations alone. She also emphasizes the particularly trying conditions of detention that the founder of Terraform Labs has experienced since his arrest in Montenegro in March 2023.
Imprisoned for using false travel documents, he spent nearly two years in detention, part of which in prison isolation. His lawyers argue that this deprivation of liberty, already suffered before the American trial, must be considered as a significant mitigating element in the final sentence. “Do has already suffered greatly as a result of his actions”underlines the letter, mentioning both the legal and personal consequences.
Furthermore, the collapse of the Terra-Luna ecosystem would not be solely attributable to Kwon's management. The lawyers allege coordinated market attacks, carried out by third-party entities, having exploited flaws in the UST algorithm.
To support their claims, they rely on academic studies and reports, providing more nuanced insight into the technical and structural responsibilities of the disaster. This strategy aims to show that Kwon, although having made serious mistakes, was not the only driving force behind the crash.
The expected verdict in the Terra Luna case will mark a turning point for crypto justice. Whatever the sentence, it will be a landmark in the way the courts treat the responsibility of the founders in the face of the excesses and consequences of such a massive collapse.
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