Do Kwon, the South Korean crypto entrepreneur behind the $40bn implosion of terraUSD and luna digital tokens last year, has been charged in the US with fraud, hours after he was arrested in Montenegro.

In a 12-page indictment revealed on Thursday, US prosecutors accused Kwon of defrauding crypto customers by “deceiving those individuals about aspects of the Terra blockchain, including its technology and the extent to which it had been adopted by users”.

Kwon, who faces eight criminal counts, including securities, commodities and wire fraud, repeated misleading claims in a TV interview in October 2019 and in a social media post the following year, prosecutors alleged.

A lawyer for Kwon did not immediately respond to a request for comment.

Earlier on Thursday, Montenegro’s interior minister Filip Adzic said on Twitter that “the former cryptocurrency king” was detained by police at Podgorica Airport with falsified documents.

The US attorney’s office for the Southern District of New York said it would seek to extradite Kwon but declined further comment on the case.

The collapse of terraUSD coin last year unleashed an unprecedented crash in crypto markets that engulfed many of the industry’s leading players. Kwon, co-founder of Terraform Labs, was previously charged with fraud and breaches of capital markets law in his home country and sparked an international manhunt after authorities were unable to locate him.

South Korean authorities said last year that he had travelled to an unknown country, believed to be Serbia, via Dubai after leaving Singapore, where Terraform was headquartered. His South Korean passport was also revoked. “We are waiting for official confirmation of identity,” Adzic added.

The meltdown of terraUSD and luna coins affected hundreds of thousands of investors, many of whom were drawn in by a scheme in which clients could lend their terra coins for a yield of up to 20 per cent.

TerraUSD, a stablecoin, was designed to connect traditional and crypto markets. Traders use them like cash or a store of value between crypto trades. Most track the value of the dollar one for one but terra was supposed to be kept in line by algorithmic coding, so it did not need to be backed by hard assets.

Kwon and Terra have also been sued by the US Securities and Exchange Commission for allegedly arranging a cryptocurrency fraud that led to billions of dollars in losses by selling a number of digital assets not properly registered with regulators.

The SEC said the alleged fraud took place between April 2018 and May 2022.

In May last year, terraUSD’s peg collapsed in dramatic fashion, sparking an unprecedented crisis of confidence in crypto markets which plunged companies such as Celsius and Three Arrows Capital into bankruptcy.

The collapse of terraUSD fuelled concerns among international regulators that the stablecoin industry poses stability risks to established finance as crypto becomes more integrated with conventional payment systems.

In September, Interpol issued a red notice against Kwon, representing a plea to worldwide law enforcement to arrest the Terraform boss. Since his disappearance, Kwon has continued to make statements on social media without sharing his location.

Terraform and Montenegro’s interior ministry did not immediately respond to requests for comment.

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