Crypto Fugitive Do Kwon Arrested After $40B TerraUSD Collapse

Tech

Of Thomas Barrabi

March 24, 2023 | 12:17 p.m

Do Kwon, the fallen crypto king who oversaw the catastrophic $40 billion collapse of two digital currencies last year, was arrested in Montenegro on Thursday and charged with new fraud charges in the United States.

Kwon, the 31-year-old co-founder of Terraform Labs, was detained at the airport in the Balkan country’s capital Podgorica while trying to board a flight to Dubai.

Local police said Kwon and another suspect — identified by Bloomberg as Terraform CFO Han Chang Joon — had forged Costa Rican and Belgian passports at the time of their arrests.

It is unclear whether Montenegrin police arrested Kwon at the behest of the US Department of Justice.

The feds revealed a list of eight charges against him, including fraud and market manipulation, related to the spectacular wipeout of the TerraUSD stablecoin and its linked sister cryptocurrency, Luna, last year.

The indictment alleges that Kwon deceived investors and customers with false and misleading statements about Terra’s technology and product offerings.

Mark Califano, a U.S. attorney for Kwon, did not immediately return a request for comment.

Federal prosecutors have signaled they will extradite Kwon to face charges, Bloomberg reported. Kwon has also been wanted for arrest in South Korea since last September.

The Securities and Exchange Commission had already filed civil charges against Kwon and Singapore-based Terraform Labs last month, accusing the executive of “orchestrating a multibillion-dollar securities fraud involving an algorithmic stablecoin and other crypto-asset securities.”

Kwon had touted TerraUSD, whose value was pegged to the US dollar, as a stable alternative to more volatile cryptocurrencies. But the value of both TerraUSD and free-floating Luna cratered last May after a sudden crisis of confidence led investors to dump their holdings.

The cryptocurrency carnage wiped out $40 billion or more in market capitalization in a matter of days. The circumstances that led to the collapse remain unclear.

Kwon’s arrest comes as US authorities crack down on alleged bad actors in the crypto sector following a series of high-profile incidents that hurt public investors.

The fall of TerraUSD and Luna contributed to a domino effect that has wiped out various other cryptocurrency entities over the past year – including disgraced Sam Bankman-Fried’s doomed platform, FTX.

Since late last year, the feds have been investigating whether Bankman-Fried engaged in illegal trading activity to drive down the prices of TerraUSD and Luna, the New York Times reported in December.

Just before their crash, traders reportedly noticed “a flood of sell orders” for TerraUSD that “overwhelmed the system” and contributed to their rapid implosion.

Most of the sell orders reportedly originated from Alameda Research, the now-shuttered cryptocurrency hedge fund owned by Bankman-Fried and once run by his ex-girlfriend, Caroline Ellison.

Bankman-Fried is currently under house arrest awaiting trial on fraud charges for his alleged role in bilking FTX customers before the firm’s bankruptcy. He faces up to 115 years in prison.

With Post wires