Do Kwon, the South Korean entrepreneur behind the cryptocurrency start-up Terraform Labs, has been charged with fraud by US prosecutors.
The charges, which include two counts each of securities fraud, wire fraud, commodities fraud and conspiracy, were made public in the US District Court in Manhattan hours after news of Kwon’s arrest earlier on March 23 in Montenegro.
Kwon, who co-founded Terraform Labs and developed the TerraUSD and Luna currencies, had been a fugitive for several months after South Korean authorities issued an arrest warrant for him last September.
The identity of the suspect arrested in Montenegro was confirmed as Kwon after his fingerprints matched the information held by the country’s National Police Agency (KNPA). Prosecutors are now working with other institutions to carry out a swift repatriation.
The criminal case follows related civil charges against DoKwon and Terraform by the US Securities and Exchange Commission (SEC) last month.
In its civil case, the SEC accused DoKwon and Terraform of “orchestrating a multi-billion dollar crypto asset securities fraud.” The complaint alleged that they had made false and misleading statements to build trust before causing devastating losses for investors.
TerraUSD was a so-called “stablecoin” designed to maintain a constant $1 price, while Luna’s value fluctuated. However, authorities have said TerraUSD and Luna were paired, so a decline in one could take down the other.
They also said Kwon misrepresented the stability of TerraUSD, which was once among the top 10 cryptocurrencies by market value. Both currencies crashed last May, with TerraUSD’s price sinking to less than one penny.
Do Kwon and Terraform had allegedly repeatedly claimed that the tokens would increase in value, misleading investors about the stability of TerraUSD.
Do Kwon’s arrest
The Montenegrin authorities detained Kwon and another suspect who was trying to board a flight to Dubai at Podgorica airport. Police found forged passports of Costa Rica and Belgium during the encounter.
“The person is suspected of being one of the most wanted fugitives, South Korean national Do Kwon, a co-founder and CEO of the Singapore-based Terraform Labs,” Interior Minister Filip Adzic wrote on Twitter.
The arrest followed a long search for Kwon by South Korean authorities who believed that Terraform Labs had violated capital market rules.
They thought he was in Serbia and even sent officials to Belgrade to negotiate, since the two nations do not have an extradition treaty. Do Kwon has previously denied he was in hiding but never revealed his location.
The charges
The US indictment accuses Kwon of “executing a fraudulent scheme to deceive the investing public” with the TerraUSD and Luna cryptocurrencies.
It alleges that Kwon and Terraform “made a series of false and misleading statements” about the digital currencies to manipulate their prices, and that Kwon profited from the fraud.
The indictment also alleges that Do Kwon and his associates created a complex network of accounts and transactions to conceal the fraud from investors and regulators. They were also accused of manipulating TerraUSD’s trading volume to boost its ranking on cryptocurrency exchanges.
Kwon’s fate now hangs in the balance as the US and South Korean authorities work to repatriate him to the US to face trial. The criminal case is likely to be closely watched by the cryptocurrency industry, as regulators around the world crack down on fraud and abuse.
