Do Kwon, co-founder of the failed TerraUSD cryptocurrency, has been charged by US authorities with fraud, after months on the run
Do Kwon, the co-founder of TerraUSD cryptocurrency, who is allegedly on the run following its spectacular demise that triggered a global crypto collapse in 2022, has been charged by US authorities.
The US Securities and Exchange Commission (SEC) announced this week that it has “charged Singapore-based Terraform Labs PTE Ltd and Do Hyeong Kwon with orchestrating a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.”
The SEC in its complaint alleged that from April 2018 until the scheme’s collapse in May 2022, Terraform and Kwon raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.
In 2022 Do Kwon had moved from South Korea to Singapore with his family following the collapse of his $40 billion digital asset project – which included the stablecoin Terra and its sister token Luna.
This move may have been prompted after the arrest of a South Korean crypto investor and social media personality called ‘Chancers’, who conducts streams on cryptocurrency-related topics.
It is estimated that nearly 250,000 people had invested in Terraform Labs’ coins, and blockchain analytics firm Elliptic has estimated that investors in TerraUSD and Luna lost an estimated $42 billion.
Chancers was arrested in May 2022 after ringing the doorbell of Kwon’s condominium and speaking with his wife.
Chancers expressed regret for the intrusion, according to local media, but called for Kwon to appear in public and apologise to investors.
Chancers said he lost up to 3 billion won (£1.9m) in the crash, and said he came across Kwon’s home address on the internet.
He visited Kwon’s home on 12 May 2022, livestreaming the visit to about 100 people via South Korea’s AfreecaTV streaming platform.
Kwon’s wife then telephoned police to ask for emergency protection.
The reclusive Kwon insisted neither he nor his company made money on the crash, but he did not exactly help his cause.
He is known for his caustic remarks about detractors, and told a YouTube crypto channel a week before the demise of TerraUSD, “95 percent [of coins] are going to die – but there’s also entertainment in watching companies die too.”
Just before the implosion he told followers on Twitter, “I love chaos.”
But on 13 May 2022 he tweeted, “I am heartbroken about the pain my invention has brought on all of you.”
On the run?
But it seems that authorities did not agree with his protestations of innocence and in September 2022 South Korea issued an international arrest warrant for Do Kwon, as well as five other unnamed people he worked with at Terraform Labs.
Interpol also issued a “red notice” for his arrest.
The arrest warrant alleged violations of the South Korea’s capital markets law, and all six individuals were said to be located in Singapore.
The only problem was that Do Kwon was nowhere to be found.
Do Kwon has previously denied that he is in hiding, but he has not revealed his whereabouts after police in Singapore could not locate him.
In December South Korean police said they believed Do Kwon is hiding in Serbia, after he had travelled via Dubai to an unknown country after leaving Singapore.
Earlier this month South Korean police travelled to Serbia to track him down.
South Korea and Serbia do not have an extradition treaty, but in the past both have agreed to requests under the European Convention on Extradition.
Now the US SEC has charged him with fraud, and alleged that “Terraform and Kwon marketed crypto asset securities to investors seeking to earn a profit, repeatedly claiming that the tokens would increase in value.”
“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD,” said SEC Chair Gary Gensler. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”
“I commend the SEC’s hard-working staff who remained vigilant in such an important investigation, even when the defendants attempted to prevent us from obtaining important information about their business,” Chair Gensler added. “This case demonstrates the lengths to which some crypto firms will go to avoid complying with the securities laws, but it also demonstrates the strength and commitment of the SEC’s dedicated public servants.”
“As alleged in our complaint, the Terraform ecosystem was neither decentralised, nor finance,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “It was simply a fraud propped up by a so-called algorithmic ‘stablecoin’ – the price of which was controlled by the defendants, not any code.”
The SEC complaint, filed in the US District Court for the Southern District of New York, charges the defendants with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.
At the time of writing there has been no response by Do Kwon on his Twitter account to the SEC charges.