View of a part of Podgorica, the capital of Montenegro. Image by Raymond Zoller via, cropped to fit the blog format, License: Creative Commons BY-SA 2.0

A sad record: Do Kwon’s Terraform Labs, creator of the collapsed cryptocurrency Terra (LUNA), is sentenced to a huge fine – probably the highest penalty for securities fraud of all time.

There was a time when $4.4 billion could buy an entire country. Today, Mr. and Mrs. Kwo from South Korea cannot even pay off the debts of their son Do’s company, who is stranded in Montenegro after an adventurous rollercoaster ride through the crypto world.

At the end of last week, Do Kwon’s company Terraform Labs reached a settlement with the US Securities and Exchange Commission (SEC): Terraform Labs and Do Kwon agreed to pay $4.5 billion – and it looks like Do Kwon got off lightly, or, to put it less euphemistically: he still has his eyes and is free.

Do Kwon founded the cryptocurrency Terra (LUNA) with his company Terraform Labs. This included the algorithmically generated stablecoin UST, which collapsed in the fall of 2022. The collapse of the stablecoin and cryptocurrency destroyed around $40 billion in value and triggered a cascade that culminated in the implosion of the FTX exchange. Of all the foolhardy madness that characterized the long DeFi summer of 2021/22, Terra stood out as particularly bold. The SEC accused Do Kwon and his company, according to director Gary Gensler personally, of “one of the largest securities frauds in US history” and filed a lawsuit.

After an arrest warrant was issued against Do Kwon in South Korea, he fled to the Balkans in order to use a fake passport to get to Dubai. However, he was arrested at Podgorica airport. A court sentenced him to four months in prison for forging an ID card. Since then, he has been free after paying bail, but is still awaiting the final ruling on his extradition with restricted freedom of movement. The country’s highest court has approved this extradition to either South Korea or the USA, but where and when still depends on the Ministry of Justice.

In the USA, he was found guilty of massive securities fraud. The agreed penalty consists of 3.5 billion dollars in restitution, over 460 million dollars in interest and 420 million dollars in civil penalties. However, Do Kwon only has to pay part of this himself, around 200 million dollars. The rest will be paid by Terraform Labs, which, according to a bankruptcy filing, only has 150 million dollars in assets.

Another part of the penalty is that Do Kwon and Terraform Labs are no longer allowed to buy or sell cryptocurrencies and tokens, including those belonging to the Terra ecosystem or its remnants. The SEC is acting a bit like a grave robber: It is imposing an absurdly unrealistic fine that far exceeds what is to be distributed in order to ensure that the creditors it represents – presumably US investors – at least get what they are worth. The order not to buy or sell assets suggests this – it effectively prohibits Do Kwon and his company from paying out other creditors.

It would be interesting to see whether Do Kwon is able to pay off his debts. It is possible. The young man could actually own hundreds of millions of dollars in cryptocurrencies on memory sticks, laptops, encrypted online wallets or brain wallets; once he has paid the fine and if no further trouble comes from South Korea, he could even board a plane to Dubai as a free man with his own passport – and, if he has made a lot of profit from the Terra disaster, carry several hundred million dollars in his hand luggage.

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