Terraform Labs Founder Do Kwon Faces Fraud Charges in New York Following Arrest in Montenegro

Terraform Labs founder and crypto fugitive Do Kwon has been charged with eight counts of fraud in New York after his arrest in Montenegro.

The indictment, which was made public in the U.S. District Court in Manhattan on Thursday, charges Kwon with two counts each of securities fraud, wire fraud, commodities fraud, and conspiracy, according to a report by Reuters. 

US prosecutors detailed that Kwon made a series of false and misleading statements during a TV interview about the extent to which the Terra blockchain had been adopted by users.

The disgraced crypto boss also made a series of purportedly misleading statements about the effectiveness of the TerraClassicUSD stablecoin to keep its peg with the US dollar, as well as Kwon’s alleged involvement in trading strategies that were designed to alter the market price of assets.

The new indictment comes as the Securities and Exchange Commission charged Terraform Labs and Kwon with defrauding US investors in mid-February. 

The complaint by the SEC accused Terraform Labs and Kwon of orchestrating a multibillion-dollar cryptocurrency fraud.

The commission said that Terraform and Kwon raised billions of dollars from investors during the period between 2018 to May 2022 by selling “crypto asset securities” in the form of synthetic assets or “mAssets,” algorithmic stablecoin Terra USD (UST), and its sister cryptocurrency LUNA.

Specifically, the lawsuit claimed that Terraform and Kwon misled investors about the stability of UST while it was using a flawed model all along.

The agency also claimed that Kwon transferred more than 10,000 Bitcoin from the Luna Foundation Guard (LFG) reserves to a cold wallet – and has been cashing out via a Swiss financial institution. 

Do Kwon’s Arrest Confirmed in Montenegro

Montenegro’s Minister of the Interior, Filip Adzic, announced via Twitter Thursday that an individual suspected of being Do Kwon had been arrested at Podgorica airport. 

“Montenegrin police have detained a person suspected of being one of the most wanted fugitives, South Korean citizen Do Kwon, co-founder and CEO of Singapore-based Terraform Labs,” a translation of Adzic’s tweet read.

On Friday, South Korean police said that the identity of the suspect arrested in Montenegro had been confirmed as Kwon after his fingerprints matched the information held by the country’s National Police Agency (KNPA).

“This has been shared with the Seoul Southern District Prosecutors’ Office and Interpol in Montenegro,” one official at the KNPA said.

Do Kwon is the co-founder and CEO of Singapore-based Terraform Labs, the company behind the crashed stablecoin TerraUSD and cryptocurrency Luna. 

TerraUSD used a mix of algorithms and trader incentives involving a sister token, Luna, to maintain its $1 peg. 

However, the stablecoin lost its dollar peg in May last year after a wave of sell-offs hit the crypto market. 

While Terraform Labs managed to partially repair the peg by purchasing $2B UST, the continued sell-off drained those funds, hyperinflated UST’s sister token LUNA, and crashed the price of both LUNA and UST.

US prosecutor estimate that the crash of the Terra ecosystem drained at least $40 billion from investors.

The Hunt for Do Kwon

In mid-September, a Seoul court issued an arrest warrant for Kwon, months after the unprecedented collapse of the cryptocurrency. 

At the time, South Korean officials claimed that Kwon was hiding in Serbia, where he arrived via Dubai after leaving South Korea for Singapore at around the time of the crash.

Back in February, a group of South Korean officials even traveled to Serbia in a bid to seek help in the hunt for Kwon. 

Notably, the South Korean foreign ministry officially canceled Kwon’s passport late last year. 

He has since been using fake travel documents to move around. 

Montenegro’s Basic State Prosecution Office also plans to press criminal charges against Kwon for using forged travel documents, according to a report by a local outlet.