A few hours after his arrest in Montenegro, the South Korean founder of the Terra cryptocurrency, Do Kwon, was charged Thursday, April 23, with fraud by the American justice system, according to documents that Agence France-Presse (AFP) has could consult.
A federal jury in New York has brought no less than eight counts against the 31-year-old man, accused of various types of fraud, including online fraud, organized gang, in connection with the crash of his cryptoasset, leading to a loss of nearly 40 billion dollars (about 37 billion euros) for investors. According to the indictment, Mr. Kwon “willfully misled investors about many aspects of the Terra Blockchain, including the technology used and the extent of its user adoption”.
He was arrested earlier today in Montenegro, along with his chief financial officer, Hon Chang Joon, according to the Balkan country’s interior minister. “Montenegro police have arrested a person suspected of being one of the world’s most wanted fugitives, South Korean Do Kwon, co-founder and CEO of Terraform Labs”announced on Twitter Filip Adzic.
The two men were arrested at the airport in the capital, Podgorica, in possession of “falsified documents”, as they sought to board for Dubai using fake Belgian and Costa Rican passports. They were the subject of an arrest warrant issued by their country of origin. “We are awaiting official confirmation of his identity”continued Filip Adzic.
Interpol had issued a red notice in September to locate him, at the request of South Korean prosecutors. The prosecution had asked the Foreign Ministry in Seoul to revoke his passport, saying Do Kwon was ” on the run “.
The American stock market policeman, the SEC, had for its part instituted proceedings in mid-February against Do Kwon for having “orchestrated a multi-billion dollar fraud in crypto assets”.
Beyond the heavy loss recorded by investors, the fall of Terraform Labs and Terra had shaken the global cryptocurrency market, the first of many tremors that have affected this sector for a year.
Terraform Labs offered a so-called stable cryptocurrency, or “stablecoin”, the Terra. In principle, the price of a stablecoin is backed by that of a traditional currency or tangible assets, which guarantees investors more stability in the very volatile world of cryptocurrencies. However, the stability of some of these cryptocurrencies is not ensured by currency reserves, but by an algorithm that performs arbitrations based on the supply and demand of another cryptocurrency. This was the case of Terra, which was backed by the cryptoasset developed by the Luna Foundation Guard.
For the SEC, Terraform and Do Kwon “have repeatedly fooled investors” claiming that a popular Korean payment app had used the technology behind the Terra to settle transactions that would increase the value of the Luna. The Terraform Labs System “was simply a fraud inflated by an algorithmic pseudo “stablecoin”, the price of which was controlled by the defendants, and not by any computer code”claimed a senior SEC official, Gurbir Grewal.
In April 2022, the value of Terra had reached its highest level. According to CoinMarketCap, it was then the fourth largest stablecoin and the tenth leading cryptocurrency by market value. A month later, the Terra had lost more than half of its value in barely twenty-four hours, sowing a wave of panic.
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Very quickly, the stablecoin and its sister token Luna fell to zero, hitting the savings of many small investors. South Korean authorities have since opened several criminal investigations into the case.