Crypto Fugitive Do Kwon has been arrested in Montenegro and charged with fraud in the United States
(Bloomberg) — Terraform Labs co-founder Do Kwon, who led a more than $40 billion cryptocurrency implosion last year, was arrested in Montenegro and charged with fraud by U.S. prosecutors.
Most read from Bloomberg
The development came just over a month after the US Securities and Exchange Commission sued the 31-year-old and Terraform Labs. It is unclear whether his arrest was at the request of US authorities. He also faces an arrest warrant in South Korea for violating securities laws.
Kwon was arrested in Podgorica along with Hon Chang Joon while trying to fly to Dubai using forged Costa Rican travel documents, Montenegro’s Interior Ministry said in a statement on Thursday.
The two were also found with Belgian and South Korean travel documents, the ministry said. The Belgian papers were forged, according to Interpol. Police seized three laptops and five mobile phones from the couple, the ministry said.
Kwon’s whereabouts have been the source of constant speculation since September, when authorities in his native South Korea issued an arrest warrant on charges including violating the Capital Markets Act. The country has revoked his passport and said he is the subject of an Interpol red notice.
Kwon found himself at the center of one of the crypto sector’s most damaging episodes last May, when the TerraUSD stablecoin he helped create and its sister token Luna suddenly cratered. This incident set off a chain of failures across digital assets that culminated in the bankruptcy of Sam Bankman-Fried’s FTX six months later. The suit from hedge fund Three Arrows Capital to lender Celsius Network overturned along the way.
Kwon did not immediately respond to attempts to contact him via Telegram message and email. Representatives for Terraform Labs did not respond to a request for comment. The contractor has previously denied criminal guilt and that he was on the run from the justice system. South Korean prosecutors and police could not immediately be reached after regular hours.
A successor to the Luna token fell more than 7% after news of the arrest before recouping some losses, according to CoinGecko.
In February, the SEC turned up the heat on Kwon when it alleged in federal court that Terraform Labs and Kwon offered and sold unregistered securities, including stablecoins, in a scheme that wiped out at least $40 billion in market capitalization.
The TerraUSD stablecoin was intended to maintain a constant value of $1. Unlike other similar tokens that rely on a reserve of liquid assets, the system relies on a complex mix of algorithms and trading incentives involving Luna. But that unraveled when confidence in Kwon’s project evaporated during a few chaotic days in early May. Cryptocurrencies fainted, and did not recover until early this year.
The prosecutor’s office in Seoul in early December said Kwon was reportedly in the landlocked Balkan nation of Serbia, weeks after he indicated he had flown to Dubai likely as a stopover to unknown destinations after leaving Singapore, where Terraform Labs- his project had base.
Prosecutors have also sought to freeze digital assets allegedly linked to Kwon.
Exactly what triggered the implosion of Kwon’s project remains a mystery. US authorities were investigating possible links to Bankman-Fried, whose FTX exchange and trading house Alameda Research went bankrupt in November.
–With assistance from Emily Nicolle, Jasmina Kuzmanovic, Jan Bratanic and Vildana Hajric.
(Updates with US fraud charges from first paragraph.)
Most read from Bloomberg Businessweek
©2023 Bloomberg LP
