Do Kwon of Terra: Latest on Crypto Billionaire Turned Fugitive
US Judge Rakoff rules in favor of the SEC to continue litigation against Terra and Do Kwon | Credit: Shutterstock
Key Takeaways
- The South Korean court held its first preliminary hearing against Do Kwon’s partner Daniel Shin
- Prosecutors failed to convince the court to place Shin under arrest
- Shin was indicted in April for several charges, including fraud
On Monday, July 10, the South Korean court began its preliminary hearing for charges against Daniel Shin, Terra co-founder. Shin, a partner of Do Kwon, was indicted back in April for multiple charges including breach of duty and embezzlement.
Shin’s lawyers denied all allegations against the Terra co-founder. Shin also did not attend the preliminary hearing. In the meanwhile, his partner, Do Kwon, is still a fugitive. Both American and South Korean authorities are attempting to extradite Do Kwon from his current country of residence Montenegro.
Daniel Shin’s Case
Fugitive Do Kwon’s partner and Terra co-founder, Daniel Shin, was indicted on April 25th by the South Korean authorities on multiple charges, including violations of the Capital Markets Act, breach of duty, and embezzlement for his involvement with Terra-Luna.
The court held its first preliminary hearing for the case, but the Terra co-founder did not attend. On the day of the indictment, Shin’s lawyers also denied all allegations put forth by the South Korean authorities, citing that South Korea’s financial authorities did not have a clear understanding of using crypto as a form of payment at the time of Terra’s launch.
Prosecutors attempted to place Shin under arrest as part of the investigation, yet failed to convince the South Korean court of executing the order, despite the prosectors’ claim that Shin had a bigger role to play in Terra’s collapse.
Switzerland Seizes Kwon’s Crypto
Swiss prosecutors have reportedly seized Do Kwon’s assets stored in Zurich, Switzerland, digital asset bank, Sygnum. The assets seized amounted to more than $26 million in value, including Bitcoins previously owned by the Terraform Labs founder.
More interestingly, the assets seized by the Swiss government are worth more than double what the South Korean government had declared Kwon & co. owned. In an interview with Bloomberg, Dan Seong-han, head of the Seoul Southern District Prosecutors’ Office’s financial and securities crime division, reported that “CEO Kwon and others have more than 13 million dollars (approximately 16.96 billion won) in funds in Signum.”
Do Kwon Is Still A Free Man, Technically
Do Kwon posted bail worth €400,000 awaiting a trial regarding his false documents case. According to reports , The prosecution has the right to appeal the bail within three days.
More importantly, legal processes in Montenegro do not allow the defendant to be extradited to either the US or South Korea where he would face trials, because the country’s government does not have an extradition agreement with either of those countries.
Special Treatment For A Billionaire Or Political Move?
Terra Labs co-founder Do Kwon and former CFO Han Chang-Joon were sentenced to four months in jail after getting arrested in Montenegro with falsified travel documents. The court decided that both defendants have effectively already spent three out of the four months sentenced since their arrest in March. The defendants may also appeal the sentence within 8 days of receiving written notice.
Considering the seriousness of a crime, such as attempting to use counterfeit travel documents to cross borders, is it possible that Kwon and Han are receiving special treatment? Or, is Montenegro fast-tracking their extradition to South Korea and the US?
Do Kwon Denies Fake Passport
Terraform Labs co-founder and known fugitive Do Kwon was caught holding false traveling documents as he attempted to fly to Dubai through Podgorica Airport in Montenegro. The false documents in question include a fake Costa Rican passport and Belgian travel documents. Reports say Do Kwon was “not aware” the documents were invalid and that he received them through a Chinese travel agency whose name he “can’t remember.”
A Warrant For Kwon’s Arrest
On September 14th, 2022, a court in South Korea issued an arrest for Do Kwon and five others, claiming the defendants violated Korean capital markets law. South Korean authorities believed that Do Kwon was in Singapore, and after requesting assistance from Singaporean authorities to place Kwon under arrest, Singaporean authorities announced that Do Kwon was nowhere to be found within the limits of the country.
South Korean authorities then began the process of placing Kwon on the Interpol red notice list and the suspension of his Korean passport. Later on, authorities believed Do Kwon was hiding in Serbia , a nation that does not have an extradition agreement with South Korea.
Kwon was finally caught in Podgorica Airport in Montenegro in March 2023 while attempting to fly to Dubai under a falsified identity using fake Costa Rican documents. Authorities also claim that Kwon had fake Belgian travel documents in his possession at the time of the arrest.
A federal grand jury in Manhattan filed eight charges against Kwon upon his arrest, including securities fraud, commodities fraud, and wire fraud.
The Collapse Of Terraform Labs
On the 7th of May 2022, investors started selling $285 million worth of UST, which some assumed was a “coordinated attack .” One wallet was even sighted dumping 108 million UST tokens on Binance and another 85 million on Binance. The next day UST’s value hit a new low of $0.985. Kwon even used Luna Foundation Guard to pump money back into the blockchain to counter the sudden drop in value, but it was too late.
The UST instability created a rush for investors to start selling their tokens, causing UST to fall in value to an all-time low of 20 cents. The 24-hour event saw TerraUSD wipe off over $200 billion from the market. Hundreds of thousands of investors saw their life savings vanish into thin air and the Terra blockchain finally came to a halt.
Before The Fall
The start of 2022 was very hopeful for Do Kwon. Luna was valued at $116, UST’s value was stable at its peg with the USD, and the company even started Luna Foundation Guard, a nonprofit organization with $4.1 billion in funding. LFG was supposed to act as a failsafe in case Luna or UST required a cash pump to keep their values at acceptable highs.
In 2021, the US Securities and Exchange Commission filed a subpoena against Terraform Labs and Kwon for allegedly using their “Mirror Protocol” to provide digital alternatives to existing stock, effectively avoiding market regulators and trading restrictions. Kwon denied the allegations, refused to comply with the SEC’s regulations, and filed a counter-lawsuit against the SEC instead.
Korea’s National Tax Service also ordered Terraform co-founders Kwon and Daniel Shin to pay taxes worth around $100 million, seeing that Kwon and Shin made major business decisions at Terraform Labs while residing in Korea, hence falling under Korean jurisdiction. The co-founders refused once again to comply, claiming that subsidiaries Terraform Labs Pte. Ltd. (Singapore) and Terraform Labs Virgin Islands are not Korean entities.
Terraform Labs
In 2018, Do Kwon co-founded Terraform Labs with Daniel Shin and released a cryptocurrency called Luna later that year. The company also started selling its stablecoin, TerraUSD(UST) in 2020, which pegged its value with the USD. Both cryptocurrencies operated on the Terra blockchain which provided stable mining incentives.
Simultaneously, Do Kwon worked on other cryptocurrencies, such as Mirror, Prism, Astroport, and Anchor. The Mirror token (MIR) served a specific purpose which was to help users find a workaround for trading current restrictions on stocks by creating and trading synthetic/digitized versions of them.
Terraform co-founder was even named in Forbes’ 30 Under 30 – Asia – Finance & Venture Capital list.
“Terra has raised $32 million from crypto-giants such as Binance, Arrington XRP and Polychain Capital, as well as assembling an alliance of commerce partners including Korean ticketing giant Ticketmonster and travel service Yanolja,” said the Forbes post.
Early Beginnings
Do Kwon received his Bachelor’s degree in computer science from Stanford University in 2015. He then went on to work as a computer engineer at Microsoft and Apple, before quitting in January 2016 and returning to South Korea. Do Kwon developed and founded his startup, Anyfi, which received over $600,000 in funding from the government through the Korean Ministry of SMEs and Startups, which later proved controversial due to the conflict of interest as the incubator responsible was one of the co-founder’s parents.
