US prosecutors charge crypto fugitive Do Kwon with fraud
Cryptocurrency entrepreneur Do Kwon — who designed a pair of digital currencies that failed spectacularly last year, triggering a market meltdown — was charged with fraud by federal prosecutors in New York on Thursday, hours after authorities in Montenegro arrested him as he prepared to board a flight.
Kwon, 31, and another person were apprehended after using forged Costa Rican travel documents at a passport check before a flight to Dubai, United Arab Emirates, Montenegro’s Interior Ministry said on Twitter. A few hours later, US prosecutors in the Southern District of New York filed criminal charges against Kwon over his management of Terraform Labs, the company behind collapsed digital currencies Luna and TerraUSD.
Kwon faces eight counts, including wire fraud, commodities fraud, securities fraud, and conspiracy to defraud and engage in market manipulation.
Kwon’s whereabouts had been a source of intense speculation in the crypto world since this past fall, when authorities in his native South Korea issued an arrest warrant for him and five others on financial charges. In September, Interpol, the international police organisation, issued a “red notice” calling for his arrest, acting at the request of the South Koreans.
A spokesperson for Kwon did not respond to a request for comment. A representative for Montenegro’s Interior Ministry referred The New York Times to the Twitter statement announcing Kwon’s arrest.
A graduate of Stanford, Kwon rose to prominence as a founder of Terraform Labs, which issued TerraUSD, a “stablecoin” designed to maintain a constant price of $1, and Luna, a more traditional type of cryptocurrency, with a value that often fluctuated.
But the digital coins were closely linked. TerraUSD was supposed to maintain its $1 peg through algorithms connecting it to Luna. As the crypto market boomed in 2021 and early 2022, the digital coins became popular, with Luna’s value shooting to $40 billion.
When critics pointed out risks in the coins’ algorithmic design, Kwon often shut them down, with taunts like “I don’t debate the poor.”
Then in May, the price of Luna declined, setting off a so-called death spiral that brought TerraUSD down with it. The crash wiped away tens of billions of dollars in value overnight and caused a market meltdown that tanked the prices of Bitcoin, Ether and other popular cryptocurrencies. Investors in Luna and TerraUSD lost everything.
Kwon came under fire for his role in the implosion, transforming from a leading industry figure into one of its most notorious villains. In September, South Korean prosecutors charged him with violating the country’s financial laws, before Interpol issued the red notice.
In response to the arrest warrant, Kwon tweeted that he was willing to cooperate with the authorities. “I am not ‘on the run’ or anything similar,” he said. Prosecutors responded that Kwon was “obviously on the run,” according to Yonhap, the South Korean news agency.
Kwon also faced scrutiny in the United States. In February, the Securities and Exchange Commission charged him with orchestrating “a multibillion-dollar crypto asset securities fraud.”
The federal indictment accuses Kwon of a range of offences, including making false statements about the success of his cryptocurrencies and orchestrating a scheme to manipulate crypto prices.
The next steps in his legal drama are unclear. The United States is likely to seek his extradition, but South Korea may also try to have him face trial there.*