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Crypto founder Do Kwon charged with fraud in U.S.

Hours before the charges were revealed, the man behind the stablecoin TerraUSD and the Luna token was arrested in Montenegro

Do Kwon at a Terraform Labs office in Seoul on April 14. (Woohae Cho/Bloomberg News)
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Do Kwon, a prominent crypto founder who was behind two digital currencies that crashed last year, was charged with fraud by U.S. prosecutors late Thursday, shortly after local authorities arrested him in Montenegro.

The arrest, confirmed by local government authorities, capped a months-long search for the crypto entrepreneur, who once had a devoted fan base but lost the faith of many investors after last year’s crypto meltdown.

Authorities had believed that Kwon, the South Korean developer of the TerraUSD and Luna cryptocurrencies, went into hiding after his home country issued an arrest warrant for him in September. At the time, Kwon denied he was a fugitive in a tweet. But since then his once-active Twitter account has fallen silent.

Disgraced crypto founder says he’s not on the run. But no one knows where he is.

Montenegro’s Interior Ministry said Thursday it “apprehended” Kwon and brought him and a fellow South Korean citizen to a prosecutor’s office in the capital city on charges of document forgery. South Korea had reportedly asked Interpol to issue a “red notice,” allowing other countries to provisionally arrest Kwon.

Later in the day, prosecutors in the Southern District of New York made public an eight-count indictment against Kwon in connection with his cryptocurrency business. The indictment charged him with various forms of fraud — including securities fraud, commodities fraud, and conspiracy to defraud and engage in market manipulation.

Kwon’s arrest comes as much of the cryptocurrency market remains battered. Its boom started to fizzle last spring when Luna crashed and sparked broader crypto market turmoil that saw other firms collapse. The so-called “crypto winter” deepened in November when FTX, a crypto exchange, went bankrupt, and its founder, Sam Bankman-Fried, was later charged with fraud.

Since then, other firms and crypto boosters have faced regulatory pressure, including the crypto exchange Kraken, which in February agreed to stop selling certain assets and pay a $30 million settlement with the Securities and Exchange Commission. Just a day before Kwon’s arrest, the SEC filed a complaint against eight celebrities, including professional boxer Jake Paul and actress Lindsay Lohan, accusing them of failing to disclose their compensation for the promotions.

Both Terra and Luna took off among crypto enthusiasts and multiplied in value before ultimately crashing last year. Investors have said Kwon defrauded them in promoting the coins.

Before the crash, Kwon was well regarded, while his fans called themselves “Lunatics” after his token. He graduated from Stanford University and briefly worked for Apple before founding several crypto projects, including Luna.

Kwon’s case has been watched closely as governments around the world weigh how to prosecute cases involving cryptocurrency and how aggressively to pursue the entrepreneurs behind the coins. Among them is FTX founder Bankman-Fried, who is under house arrest pending a slew of civil and criminal charges brought against him by government agencies.