The fugitive founder of the Terra cryptocurrency, Do Kwon, has been arrested in Montenegro, that country’s interior minister announced on Thursday.
“Police in Montenegro 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,” Filip Adzic announced on Twitter.
The suspect was arrested at the airport in the capital, Podgorica, in possession of “falsified documents.”
“We are awaiting official confirmation of his identity,” Adzic said.
Charged with multi-billion-dollar crypto asset fraud
The US stock market watchdog, SEC, charged Do Kwon in mid-February with “orchestrating a multi-billion-dollar crypto asset fraud.
Interpol had issued a red notice in September to locate him, at the request of South Korean prosecutors, who had also asked the foreign ministry in Seoul to revoke his passport, saying Do Kwon was “on the run”.
The fall of Terraform Labs and the crash of the cryptocurrency Terra last year had cost investors nearly $40 billion and rocked the global cryptocurrency market.
Terraform Labs offered a so-called stable cryptocurrency, or stablecoin, Terra.
Stability founded not on currency reserves but on an algorithm
In principle, the price of a stablecoin is backed by a traditional currency or tangible assets, which guarantees investors more stability in the highly volatile cryptocurrency world.
However, the stability of some of these cryptocurrencies is not provided by currency reserves, but by an algorithm that performs arbitrage based on the supply and demand of another cryptocurrency.
This was the case with Terra, which was backed by the crypto asset developed by Luna Foundation Guard.
According to the SEC’s complaint, Terraform and Do Kwon “repeatedly duped investors” by claiming that a popular Korean payment app had used the technology behind Terra to settle transactions that would increase the value of Luna.
Multiple criminal investigations in South Korea
The Terraform Labs system “simply constituted a fraud inflated by an algorithmic pseudo stablecoin, the price of which was controlled by the defendants, not by any computer code,” said a senior SEC official, Gurbir Grewal.
By April 2022, Terra’s value had reached its highest level. According to CoinMarketCap, it was then the fourth-largest stablecoin and the 10th-largest cryptocurrency by market value.
A month later, Terra lost more than half its value in just 24 hours, creating a wave of panic. Soon, the stablecoin and its sister token Luna fell to zero, damaging the savings of many small investors.
South Korean authorities have since opened several criminal investigations around the case.