Do Kwon is asking a Manhattan judge to sentence him to no more than five years in prison for orchestrating the $40 billion collapse of TerraUSD, despite prosecutors agreeing to recommend up to 12 years under his plea deal.
According to Bloomberg, the Terraform Labs co-founder argues in a Wednesday filing that longer imprisonment is “far greater than necessary” to achieve justice, pointing to nearly three years already served in what his lawyers describe as “brutal conditions in Montenegro.“
Kwon pleaded guilty in August to conspiracy and wire fraud charges after being extradited from Montenegro, where he was arrested in March 2023 for traveling with forged documents.
His sentencing by US District Judge Paul Engelmayer is scheduled for December 11, with the statutory maximum reaching 25 years for his role in the algorithmic stablecoin fraud that wiped out tens of billions in investor value during May 2022.
Source: Reuters
Defense Cites Montenegro Detention and South Korea Prosecution
Kwon’s legal team emphasizes the substantial punishment he has already endured during his extended detention abroad.
They note that he has agreed to forfeit more than $19 million and several properties as part of the plea agreement reached with prosecutors in the Southern District of New York.
His lawyers further highlight that Kwon still faces trial in South Korea for the same conduct, where prosecutors are seeking a 40-year prison term.
The defense argues that this dual prosecution imposes additional consequences that should factor into the American sentence, particularly given the overlap in allegations across both jurisdictions.
The government is expected to file its own sentencing recommendation soon, though prosecutors previously agreed not to seek more than 12 years under the plea deal terms.
Judge Engelmayer retains final discretion over the sentence regardless of any prosecutorial recommendations or defense requests.
Terra Collapse Vs Sam Bankman-Fried’s FTX Fraud
The sentencing debate arrives as Sam Bankman-Fried pursues appeals of his 25-year sentence for the $8 billion FTX collapse.
Bankman-Fried’s legal team argues he was “presumed guilty” from the outset and denied a fair trial due to judicial bias from US District Judge Lewis Kaplan.
His attorneys claim Judge Kaplan “repeatedly ridiculed” the defense team and pressured jurors into a quick verdict by offering to extend deliberations late into the evening with dinner provided.
They contend FTX always had sufficient assets to repay customers and faced only a liquidity crunch, rather than actual insolvency, pointing to current recoveries ranging from 119% to 143% of petition-date values.
Bankman-Fried was convicted in 2023 on seven counts of fraud and conspiracy after a month-long trial featuring testimony from former associates, including Alameda Research CEO Caroline Ellison.
Prosecutors alleged he misappropriated customer funds to cover trading losses, make political donations exceeding $100 million, and finance luxury real estate purchases in the Bahamas.
Sentencing Disparities Raise Deterrence Questions
The contrasting approaches have raised eyebrows over the differing outcomes in two of the major crypto fraud prosecutions.
Bankman-Fried received 25 years, plus an $11 billion restitution order, after going to trial and being convicted on all counts. However, a recent report shows that 4 years were knocked off his sentence.
In comparison, Kwon’s guilty plea reduced his exposure significantly despite Terra’s larger $40 billion loss.
Legal experts note that federal sentencing guidelines for fraud at Terra’s magnitude would typically suggest advisory ranges approaching life imprisonment before statutory caps.
Judge Engelmayer’s reputation for strict handling of financial fraud cases suggests Kwon’s five-year request faces steep odds, with most observers expecting sentences between 15 and 20 years given the massive victim impact.
Judge Paul Engelmayer. | Source: Law[dot]com
Kwon admitted in court that between 2018 and 2022, he “knowingly agreed to participate in a scheme to defraud purchasers of cryptocurrencies from my company, Terraform Labs.“
He acknowledged making false statements about how TerraUSD’s peg was restored and concealing the role of Jump Trading in secretly propping up the stablecoin during a May 2021 depeg event.
The December 11 sentencing will determine whether cooperation through a guilty plea significantly reduces punishment compared to Bankman-Fried’s trial conviction.
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