Do Kwon, the enigmatic CEO and co-founder of Singapore-based Terraform Labs, was arrested at Podgorica airport in Montenegro on March 23rd, 2023. This was part of a larger effort by South Korean and American police and prosecutors to apprehend Do Kwon for his role in last year’s collapse of the LUNA and Terra ClassicUSD tokens, resulting in losses totaling over $40 billion.
The seemingly outrageous saga began a year ago when the Terra ecosystem collapsed, causing the price of Bitcoin to drop from an all-time high of $40,000 to as little as $27,000 in the span of two weeks. Many companies were affected by the crash, including the crypto hedge fund Three Arrows Capital (3AC).
In September 2020, South Korean prosecutors issued an arrest warrant against Kwon for fraud and breaches of the capital markets law. Interpol followed up shortly thereafter with a red notice listing him as a wanted fugitive. The U.S. Securities and Exchange Commission (SEC) also filed a suit in February 2021, further further fanning the flames of this evolving saga.
Amidst the firestorm of controversy and legal repercussions, Kwon was nowhere to be found. By then, he had set off on a zig-zag escape route that had taken him from Singapore to Dubai and then Serbia.
It wasn’t until March 2021 that Federal prosecutors in New York charged Kwon with fraud, just hours after his arrest at the Podgorica Airport in Montenegro. At the time of his arrest, it was reported that Kwon and his fellow business partner Hon Chang Joon attempted to board a flight to Dubai with falsified documents. A luggage search allegedly found forged Belgium travel documents, along with three laptops and five mobile phones.
The court filing that followed the arrest brings a total of eight charges against Kwon. These include commodities fraud, securities fraud, wire fraud, and most notably, conspiracy to defraud and engage in market manipulation by using false and misleading statements about the effectiveness of TerraClassicUSD stablecoin (USTC) in relation to its peg with the U.S. dollar, as well as his alleged involvement in trading strategies. The South Korean foreign ministry also confirmed that he had been barred from leaving the country after failing to surrender his passport following a court order.
The arrest of Do Kwon was met with a price-drop in the already much-depleted LUNA token, falling 8.2% to $1.31 upon the announcement of his capture. Apart from the fines and legal repercussions Kwon might have to face, the eventual outcome of this ongoing saga is yet to be determined. But, what is certain is that the arrest of Do Kwon sent a strong message to the crypto community that fraudulent activities such as market manipulation and deceptive marketing plans will not be tolerated.
On the one hand, the saga of Do Kwon and the failure of the Terra ecosystem could have been prevented if stricter regulations and compliance procedures had been in place. On the other hand, it has also given the crypto community an important lesson about the risks and precautions at play when investing in tokens or coins that are not widely recognized or regulated. Despite the dire consequences that can arise from financial mismanagement, these are issues that can be addressed in the future if investors remain vigilant and exercise caution when investing in obscure or unsteady tokens.
