South Korean police have recently apprehended Do Kwon, the CEO of Terraform Labs, a cryptocurrency company, who was a fugitive accused of perpetrating a multi-billion dollar crypto asset securities fraud that caused the collapse of the TerraUSD and Luna tokens worth $40bn. Kwon has been charged with securities fraud, wire fraud, commodities fraud, and conspiracy by prosecutors in the US, as per the indictment made public at the US District Court in Manhattan on Thursday.
The Arrest and Charges
Mr. Kwon had been on the run for several months and was captured in Montenegro. Montenegro’s Interior Minister, Filip Adzic, tweeted that the suspect was traveling under a false name with fake documents. The South Korean authorities had issued an arrest warrant for Kwon in September 2022 for violating capital market rules. The fugitive CEO now faces several charges, including securities fraud, wire fraud, commodities fraud, and conspiracy, according to the indictment made public at the US District Court in Manhattan on Thursday.
Regulatory Accusations and Denials
US financial regulators accused Kwon and Terraform Labs of failing to provide full, fair, and truthful disclosure required for a host of crypto asset securities, most notably for Luna and TerraUSD. They allegedly misled investors about the stability of TerraUSD and repeatedly claimed that the tokens would increase in value. However, the value of the tokens and its linked Luna cryptocurrency plunged to close to zero last May. This caused a sell-off in major cryptocurrencies like Bitcoin, Ethereum, and Tether, resulting in a cryptocrash that trended online. Kwon has previously denied being in hiding but never revealed his location.
Losses and Reaction
Investors in TerraUSD and Luna lost an estimated $42bn globally, according to blockchain analytics firm Elliptic. Mr. Kwon said at the time, “I am heartbroken about the pain my invention has brought on all of you.” Terraform Labs did not immediately respond to a BBC request for comment.
Extradition and Implications
The absence of extradition treaties between Montenegro and the US or South Korea may make it difficult to extradite Kwon to face charges in either country. The implications of the fraud case for the cryptocurrency industry are unclear, but it may lead to increased regulatory scrutiny and potentially stricter regulations in the future.
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