• Prosecutors seek a 12 year sentence for Do Kwon as they cite major losses and widespread market disruption.
• Do Kwon argues for a shorter term while prosecutors say investors faced significant harm across the crypto sector.
• The Terra collapse triggered global fallout as authorities pursued Kwon through a long international extradition process.

U.S. prosecutors are seeking a 12-year prison term against the founder of Terraform Labs, Do Kwon, as his sentencing approaches on December 11. They stated that the magnitude of the Terra and Luna collapse needs the most severe penalty that can be handed in his plea bargain. 

They also stress that the fallout from the failure reached far beyond a single crypto project. The request follows a detailed submission to Judge Paul Engelmayer in the Southern District of New York.

Case Background and Charges

The case is based on the crash of TerraUSD and Luna in 2022, wiping approximately $40 billion of value. The collapse triggered stress in a number of trading and lending platforms. According to prosecutors, Kwon lied to buyers over the stability and risks associated with the tokens. TerraUSD relied on an algorithmic framework that is associated with Luna to keep its price. The system failed during sharp market pressure and triggered a wider market shock.

In March 2023, the government charged Kwon with a number of conspiracies involving fraud, market manipulation and money laundering. He eventually pleaded guilty to one count of conspiracy involving commodities, securities and wire fraud and a second count of wire fraud in August 2025. All combined statutory maximums amount to 25 years. The plea deal however allows the prosecutors to seek up to 12 years. They are after that term. Earlier this year, Do Kwon’s trial was set for January 2026 for alleged fraud tied to the collapse of Terraform Labs.

Arguments From Both Sides

Prosecutors say the fraud ran for years and deprived buyers of accurate information while inflating the value of Terraform assets. They say the conduct helped elevate Kwon’s public profile. They also argue that the size of the losses and the number of affected buyers support a lengthy sentence. They want Kwon to forfeit more than $19 million in proceeds. They are not seeking restitution because they say individual losses are difficult to calculate across global victims.

Kwon’s legal team is pushing for a shorter sentence. They argue that a five-year term is appropriate. They say external trading activity intensified the collapse. They point to analyses that outline how third-party firms exploited structural weaknesses. Their position sets up a clear divide ahead of the sentencing date.

International Arrest and Civil Proceedings

In March 2023 Kwon was arrested by the police in Montenegro after attempting to travel using forged documents. Both America and South Korea demanded his extradition. This was followed by a long process in court. In December 2024, Montenegro finally extradited him to the United States.

The Securities and Exchange Commission also had a civil case against Kwon. In April 2024, a jury declared Terraform Labs and Kwon guilty on the civil counts of fraud. The ruling added pressure as the criminal case advanced. Judge Engelmayer will decide the sentence in Manhattan federal court. The decision will determine the outcome of one of the most closely watched crypto fraud cases to date.

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