How Do Kwon’s $40B Crypto Scam Shook the Market

Do Kwon, the co-founder of Terraform Labs and the mastermind of the $40 billion crypto scam involving TerraUSD and Luna tokens, is in custody in Montenegro.

He also has to deal with questions about his alleged connections to a local politician. while facing extradition requests from South Korea and the US.

The Arrest of Do Kwon and His CFO

RFE reported that the High Court of Montenegro ordered Kwon to be held for six months as it considers South Korea’s extradition request for him.

Kwon is wanted by Seoul for what has been called “the largest financial fraud or financial securities fraud case that has ever happened in South Korea.”

RELATED: South Korea Issues Arrest Warrants for Former Do Kwon Colleagues

The US has also sought Kwon’s extradition to face charges by federal prosecutors and the Securities and Exchange Commission (SEC).

Who accused him and his company of “orchestrating a multi-billion dollar crypto asset securities fraud” involving an algorithmic stablecoin and other crypto assets.

Kwon and his former CFO Han Chang-Joon were arrested on March 23 at Podgorica’s airport in Montenegro, while trying to board a private jet to Dubai.

They were charged with using fake travel documents by the Montenegrin Basic Court, which will hold a hearing on June 16.

The Alleged Ties to a Local Politician

Kwon is also expected to be questioned by the Special State Prosecutor’s Office about his ties to Milojko Spajić, the leader of the Europe Now party.

Kwon claimed to have contacted Spajić in a letter he sent to several officials before the recent elections in Montenegro.

Spajić denied any connection to Kwon, but their alleged relationship and possible financial contributions from Kwon were widely covered by the media in the country.

The Collapse of Terra Ecosystem

Terraform Labs’ Terra ecosystem collapsed in May 2022, leading to losses estimated at up to $40 billion.

The Terra ecosystem consisted of an inter-connected suite of crypto asset securities, including TerraUSD (UST), an algorithmic stablecoin that supposedly maintained its peg to the U.S. dollar by being interchangeable for another of the defendants’ crypto asset securities, LUNA.

Other crypto assets offered by Terraform Labs included mAssets, security-based swaps that mirrored the price of US stocks, and MIR and LUNA tokens.

The SEC alleged that Terraform Labs and Kwon marketed these crypto assets to investors seeking to earn a profit, and repeatedly made false and misleading statements about their value and stability.

For example, they advertised UST as a “yield-bearing” stablecoin that paid up to 20 percent interest through the Anchor Protocol.

They also claimed that a popular Korean mobile payment app used the Terra blockchain to settle transactions that would accrue value to LUNA.

However, in May 2022, UST depegged from the U.S. dollar, and the price of it and its sister tokens plummeted to close to zero.

This triggered a sell-off in major cryptocurrencies such as Bitcoin, Ethereum and Tether, causing a massive market crash.