Sorry Seems To Be the Hardest Word
A simple apology proved difficult for crypto tycoon Do Kwon after the $45 billion collapse of his Terraform Labs
“It’s a sad, sad situation, and it’s getting more and more absurd.” – Elton John
The least you can say after losing the life savings of thousands of people is, I’m sorry.
Otherwise the victims of your ridiculous financial folly will believe the online chatter that you are a manipulative sociopath lacking any sense of remorse.
Do Kwon, the 32-year-old crypto tycoon facing criminal fraud charges in both the U.S. and South Korea, made this blunder in a 2022 interview with crypto journalist Laura Shin.
It’s both tragic and comic to watch him ramble about how his company, Terraform Labs, was a failure and not a fraud – especially after its collapse wiped out $45 billion in digital market value and the savings of thousands of people worldwide.
At the top of his game, Kwon mocked his social media critics as “idiots” and haughtily told one of them:“I don’t debate the poor on Twitter.” Then, after his critics proved absolutely correct, sorry seemed to be the hardest word.
Regulators strike a too-good-to-be-true settlement
On Wednesday, Terraform Labs, agreed to a nearly $4.5 billion settlement with the U.S. Securities and Exchange Commission. It is the largest settlement the SEC will never collect because Terraform filed bankruptcy in January claiming it has less than half a billion in assets.
Kwon, himself, agreed to hand over $204 million as part of the deal – but we’ll see how that goes.
“The entry of this judgment would ensure the maximal return of funds to harmed investors and put Terraform out of business for good,” the SEC said in a letter filed in court, where its biggest-ever settlement awaits approval.
For now, Kwon’s been detained in the Balkan nation of Montenegro with both the U.S. and South Korea seeking his extradition.
He disappeared in September 2022, but was finally caught boarding a private jet with a fake Costa Rican passport, officials said. Kwon has said he wasn’t evading authorities, just his ruined investors who can sometimes be menacing – if you can imagine that.
Sorry, not sorry
Kwon spoke calmly in long and jumbled sentences during his October 2022 interview with Shin of the online crypto publication, Unchained. He was actually quite boring, and called himself an introvert, but the interview is instructive to watch.
About 20 minutes in, Shin asks what Kwon would like to say to people who lost their life savings in the collapse of his company and its cryptocurrencies, including the stable coin, TerraUSD, or UST.
She mentions a man who received a $50,000 insurance payment for treating a malignant tumor, but he lost 90% of it. She mentions a man in Taiwan who lost $2 million and committed suicide. The human toll seems lost on Kwon.
“Having to contend with so much astronomical loss, it’s quite hard to put into words,” Kwon responds, “but the scale of the financial and emotional and econmic damage that happened here is not easy to live with.”
Shin, who was formerly a senior editor at Forbes, pushes back: “I didn’t hear words like ‘I’m sorry’ or ‘I apologize.’”
“Oh, yes,” he replies as if it had just sort of slipped his mind. “I am sorry.”
Then he expresses his regrets that his business failure is being misconstrued.
“In the process of people dealing with this grief, there’s been a lot of people making allegations that like there was a fraud, or Do Kwon probable shorted UST, or there was theft or embezzlement going on …
“Even for the people in grief, I think it’s important for their closure for them to have a correct representation of what exactly happened,” he continues. “While it is easy to think this entire thing crashed because it was a scam, or to point fingers to somebody and just assume there was some theft going on or something like that, that was absolutely not the case.”
Enron’s Ken Lay and Jeffrey Skilling put on a similar defense. The collapse of the energy trading giant was just an “economic accident,” not a fraud. It didn’t work out so well for them, either.
The unstable stable coin
Kwon was born in Seoul, South Korea, in 1991. He graduated from Stanford University in 2015 and went on to work for Apple and Microsoft as a software engineer.
After founding Terraform in 2018, he created TerraUSD, which was designed to be a stable coin. It was pegged to the U.S. dollar through an algorithm, yet it had no assets behind it. Another token Terraform developed called Luna – whose value moved with the market – was supposed to ensure TerraUSD would always be worth $1.
Crypto traders don’t like to be in U.S. dollars, so the idea of a stable coin that is always worth $1 is an attractive place to park profits between trades of volatile currencies like Bitcoin and Ethereum. Terraform sold the idea that if TerraUSD somehow broke the buck, it could always be exchanged for $1 worth of Luna.
This, of course, is like saying, don’t worry, if your comic book loses value you can always trade it in for a Beanie Baby.
Are thousands of crypto investors really this gullible?
The big hook (and sinker) was Anchor Protocol, a crypto bank that offered yields as high as 20% on TerraUSD deposits.
If 20% interest sounds like a Ponzi scheme to you, congratulations. For too many investors, the real yield was losing as much as 100% when TerraUSD’s value dropped below $1. Suddenly, everyone want to cash out at once, causing something tantamount to a bank run and shaking up the global crypto market.
Pride even after the fall
The primary allegations against Kwon and Terraform involve securities fraud for not properly disclosing, or even lying about, extreme risks.
“If approved, the proposed judgment will send an unmistakable deterrent message to not only those who engage in brazen misconduct, but also to all those who seek to evade the requirements of the federal securities laws by crafting new standards of behavior for crypto assets that fall under the purview of the federal securities laws,” the SEC said in its letter to the court.
The proposed SEC settlement follows a 25-year prison sentence for the FTX crypto-exchange founder Sam Bankman-Fried and a four-month prison sentence for Binance founder Changpeng Zhao after his exchange paid $4.3 billion in fines for failing to prevent money laundering and financing to terrorist groups.
“It’s probably really hard for this to resonate in this current time,” Kwon told Shin. “But I’ve been a founder in crypto for the last five years. I hold the transparency openness and the integrity of this industry quite highly, and you know, even to this day, I am proud of the integrity by which we sort of tried to create our protocols, the work that we did, and the values that we tried to defend.”
Kwon was right about at least one thing: Claims of integrity in the crypto market don’t resonate – especially when you have to be prompted for an apology.
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Maybe Stanford should be renamed Stanfraud, since it's the training institute for professional white-collar criminals.
Narcissists and manipulators - they never apologize. Hope karma catches up to him.