After being arrested in Montenegro, Do Kwon has been charged with fraud by US prosecutors. Do Kwon is the co-founder of Terraform Labs, the company behind the $40bn collapse of TerraUSD and Luna digital tokens last year.
The meltdown of these tokens affected hundreds of thousands of investors, many of whom were drawn in by a scheme in which clients could lend their Terra coins for a yield of up to 20%. Kwon is facing eight criminal counts, including securities, commodities, and wire fraud.
A probable cause for the crime of fraud
According to a 12-page indictment revealed on Thursday, Kwon has been accused of deceiving customers about the Terra blockchain’s technology and adoption rates. The US prosecutors allege that he repeated misleading claims in a TV interview in October 2019 and in a social media post the following year.
The collapse of the TerraUSD coin last year unleashed an unprecedented crash in the crypto market that engulfed many of the industry’s leading players. Kwon sparked an international manhunt after he was unable to locate in his home country, where he had previously been charged with fraud and breaches of capital markets law.
South Korean authorities said last year that he had travelled to an unknown country, believed to be Serbia, via Dubai after leaving Singapore, where Terraform was headquartered. His South Korean passport was also revoked.
Kwon’s arrest in Montenegro came after he was found to be carrying falsified documents. Montenegro’s interior minister Filip Adzic announced the arrest on Twitter, referring to Kwon as “the former cryptocurrency king”. The US attorney’s office for the Southern District of New York has stated that it will seek to extradite Kwon, although it declined further comment on the case.
Kwon and Terraform Labs have also been sued by the US Securities and Exchange Commission for allegedly arranging a cryptocurrency fraud that led to billions of dollars in losses by selling a number of digital assets not properly registered with regulators. The SEC claims that the alleged fraud took place between April 2018 and May 2022.
The news of Kwon’s arrest and charges is likely to have significant repercussions in the crypto industry, which is already under scrutiny from regulators around the world. It is a reminder that investors should exercise caution when investing in cryptocurrencies, especially in cases where promises of high returns are being made.