$40 Billion Cryptocurrency Collapse Mastermind Do Kwon's "Fugitive" Saga: Everyone Is Looking for Me

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After the LUNA Crash, South Korea issued a Red Notice through the international police organization Interpol, requesting police worldwide to arrest Do Kwon.

Source: Alexander Osipovich, Jiyoung Sohn, Weilun Soon, and Drew Hinshaw, The Wall Street Journal

Translation Source: Luffy, Foresight News

The fallen cryptocurrency mogul Do Kwon was preparing to leave Montenegro. He and his colleagues arrived at the airport of this Balkan microstate, where a Bombardier private jet was waiting to fly them to Dubai.

Inside the VIP terminal, Kwon handed his passport to an immigration officer. The officer swiped the passport, and a red alert flashed on the screen: Kwon was the subject of an Interpol red notice—calling for his arrest by police worldwide.

Kwon had been hiding in the Balkans for several months, but his luck seemed to be running out. It was March 23, and about two hours earlier, a informant had told Montenegro's top cop, Interior Minister Filip Adi, that Kwon might be in the country.

Adi recounted the arrest to The Wall Street Journal, saying the informant had sent detailed information from Kwon's passport to the minister's phone. When Adi called the head of the border police, the police had just detained Kwon at the airport.

“Do you know who this person is?” the interior minister said he told the police chief. “He is very famous and very rich.”

In April 2022, before the collapse of TerraUSD and Luna, Do Kwon was at Terraform Labs' Seoul office. Source: Bloomberg News

American and South Korean authorities have been investigating Kwon's role in one of the biggest disasters in cryptocurrency history. In May 2022, the two tokens he created, TerraUSD and Luna, suffered a sharp drop in value, causing a $40 billion crypto market loss and triggering a chain reaction that led to the bankruptcy of a string of other crypto firms. Investors worldwide suffered losses.

The researchers' conclusion is that Kwon lied to investors and is suspected of secretly holding a significant cryptocurrency fortune. He is currently facing charges in the United States and South Korea, including fraud and violation of capital market laws. South Korean prosecutors stated that if convicted in Korea, Kwon could face the country's longest-ever prison sentence for financial crimes.

Kwon denies any fraudulent behavior. However, just before facing possible arrest, he vanished from his luxury high-rise home in Singapore. He taunted authorities by tweeting from undisclosed locations and giving interviews. Even after his arrest, he continued to stage dramas: a letter he sent from prison to the Prime Minister of Montenegro sparked a major political scandal.

The 32-year-old Kwon is now held in solitary confinement in a Montenegrin prison. Officials discovered that the Costa Rican passport he presented at the airport was fake. The United States and South Korea are battling for his extradition. If sent to the U.S., he could ultimately end up in a New York prison, where another disgraced cryptocurrency magnate, Sam Bankman-Fried, is currently held; his company suffered a fatal blow from the TerraUSD-Luna collapse.

The description of Kwon's fugitive life is based on interviews with officials from South Korea and Montenegro, current and former employees of Terraform Labs, as well as individuals close to Kwon. Kwon did not respond to requests for comment submitted to his Montenegrin lawyer.

Kwon has been held in Montenegro's Spuz prison since his arrest. Image source: The Wall Street Journal

“Stay Calm, Gentlemen”

TerraUSD is a stablecoin designed to maintain a pegged price of $1. Cryptocurrency investors often use stablecoins as a safe haven to preserve profits from successful trades. TerraUSD differs from many other stablecoins in that it has no USD deposits backing it. It is a so-called algorithmic stablecoin, relying on complex financial engineering and the collective efforts of traders to maintain its peg to $1.

Kwon praised TerraUSD as the core of a new currency system free from bank and government control. Some cryptocurrency observers warned that this is a ticking time bomb.

On May 7, 2022, the price of TerraUSD began to slide, causing panic among investors. The trigger for the fall was several large withdrawals from the Anchor Protocol, a pseudo-bank offering investors nearly a 20% annual return on their TerraUSD deposits.

When TerraUSD plummeted, Kwon tweeted, "Will deploy more capital - boys hold the line." His team tapped into a $3 billion reserve fund to support the stablecoin. He scrambled to orchestrate a rescue, but it was all in vain. Within days, TerraUSD plummeted to near zero.

Investors were furious. They had poured billions into TerraUSD, with much of it locked into Anchor, seen by many as a savings account. Others had bet on the related token Luna, which tanked over 99%.

While Terraform Labs is based in Singapore, Seoul may be the epicenter of this turmoil. Kwon, a South Korean citizen, attended an elite English-language high school in Seoul and studied computer science at Stanford in California. South Korean officials stated that approximately 100,000 Koreans lost money in TerraUSD and Luna. Complaints flooded the prosecutor's office.

Leading the investigation is Dan Sung-han. Dan, 49, heads the Financial Crimes Investigation Unit of the Seoul Southern District Prosecutor's Office and appears somewhat boyish. Known for the agency's crackdown on stock market fraud and manipulation, local media dubbed him the "Noryangjin Grim Reaper" (referring to Seoul's financial district). "It took us a long time to really understand the crypto market," Dan said.

(Left) Dan Sung-han, Seoul Southern District Prosecutor's Office; (Right) Investigators seize evidence from a cryptocurrency exchange in July 2022. Source: The Wall Street Journal

Korean investigators conducted a raid on Terraform's local office, questioning current and former employees. They gathered evidence from seven Korean cryptocurrency exchanges and left with blue boxes filled with documents, laptops, smartphones, and external hard drives.

Crypto Tycoon

At the time, Kwon was living in a high-rise luxury condo, Sculptura Ardmore, in Singapore with his wife and young daughter. His duplex apartment featured a 46-foot cantilevered outdoor pool. He served Japanese whiskey and Cuban cigars to guests.

His daughter had been born just weeks before, and Kwon had named her Luna after his cryptocurrency. "My dearest creation named after my greatest invention," he tweeted with a newborn's photo.

That summer, Kwon met friends at a French and Japanese restaurant, including the Michelin three-star Les Amis. He proposed to some colleagues the idea of taking an extended family trip to Europe, where he could fly under the radar in a new city.

Shortly after the financial crisis, he attended a gathering in Singapore where many attendees were cryptocurrency entrepreneurs who came to show their support for Kwon. According to a source familiar with the matter, it was a lavish affair with flowing crystal champagne and Martell XO Cognac.

Meanwhile, Kwon's investors were also suffering.

Singapore Sculpture Museum. Source: The Wall Street Journal

In war-torn Ukraine, web designer Yuri Popovich reported losing $9,000 held in TerraUSD because he didn't trust the country's banks. In the UK, a 36-year-old IT consultant lost over $30,000. He said it took him two months to gather the courage to tell his wife.

In Taiwan, local media reported that a man committed suicide by jumping from his 13th-floor apartment after telling family and friends he lost around $2 million on Luna.

In June 2022, Kwon told The Wall Street Journal through a spokesperson, "The events of recent days have been shocking, and I hope all the affected families take good care of themselves and their loved ones."

Singapore law firm Drew & Napier is preparing to represent a group of TerraUSD investors in a lawsuit against Kwon, claiming they have lost over $50 million collectively.

On September 6, 2022, Kwon celebrated his 31st birthday at home. His wife shared photos with friends of him enjoying a Korean meal and playing with their children.

The next day, a representative from Drew & Napier arrived at Sculptura Ardmore to serve him with the lawsuit papers, but he had already left by then.

Red Notice

The South Korean prosecutor said that on September 7, Kwon flew to Dubai and then to Serbia. He settled in the capital, Belgrade, known for its nightlife and tech industry.

Days later, the South Korean prosecutor obtained an arrest warrant for Kwon on charges of violating the South Korean Capital Market Act. After a long time, they felt immense public pressure to bring Kwon to justice. Their leader, Dan, would sometimes take naps in the office's black reclining chair.

In addition to other alleged misconduct, Dan's investigators also focused on the relationship between Terraform Labs and Chai. Chai is a South Korean payment app that once had 2 million users.

Prior to the collapse, Kwon had repeatedly claimed that Chai used his company's Terra blockchain to transfer funds between users and merchants. This claim was a key selling point to investors, who saw Chai's use of Terra as a rare real-world application of blockchain technology. Supporters saw blockchain (the underlying technology behind Bitcoin and other cryptocurrencies) as a way to empower individuals while eliminating banks and other traditional intermediaries.

However, the South Korean prosecutor claimed that Kwon's claims were false. They said that, in reality, Chai used traditional payment systems to settle transactions, and its use of blockchain was a deception. Daniel Shin, the founder of Chai, stated that Chai initially used the Terra blockchain for processing payments but stopped in 2020. Shin, Kwon's former business partner, denied any wrongdoing. Kwon's lawyer defended his statements regarding Chai.

Chai founder Daniel Shin arrives at the Seoul Southern District Court. Source: Bloomberg News

"I am not 'on the run,'" Kwon wrote on Twitter on September 17 after news of the arrest warrant emerged. He still refused to disclose his location, citing security threats.

The South Korean prosecutor issued a red notice through the global police agency Interpol, requesting police worldwide to arrest Kwon.

Residing in Serbia, Kwon told a cryptocurrency industry colleague that he had reached an agreement with the local government. He informed another person that even after learning of Interpol's red notice, Serbian law enforcement still allowed him to stay. The Serbian Ministries of Interior, Justice, Foreign Affairs, and the main Prosecutor's Office did not respond to interview requests.

Kwon continues to oversee Terraform Labs behind the scenes and is driving a long-term revival plan for the Terra blockchain. According to The Wall Street Journal, he joked with colleagues from the Terra Rebirth League, a Telegram group with over 300 members.

During his early stay in Belgrade, Kwon lived in an apartment near the Mihailova Cemetery, a pedestrian street in downtown Belgrade known for its shops, sidewalk cafes, and 19th-century buildings, where he met Kwon, said Milojko Mickey Spaji, a politician from Montenegro.

Knez Mihailova Street in Belgrade. Source: GETTY IMAGES

Spaji told The Wall Street Journal that Kwon invited him over, and they spent about an hour chatting over coffee, discussing Kwon's ambitions to revitalize Terra.

The two have known each other since 2018 when Spaji, then a partner at the venture capital firm DAS Capital in Singapore, agreed to invest $75,000 in Luna. He later returned to his homeland and entered politics, aiming to make Montenegro a blockchain hub.

Spaji said he did not know at the time that Kwon was a fugitive.

According to Serbian business records, on October 12, Kwon registered a company named Codokoj22 doo Beograd, listing himself and Chang-joon Han as directors.

Han, a former executive at Terraform Labs and Chai, later joined Kwon in the Balkans. Serbian property records from December 2022 show that Han owns a 4,300-square-foot apartment in a wealthy Belgrade neighborhood.

On November 8, Kwon appeared on the UpOnly podcast. He joked with another guest, former hedge fund manager Martin Shkreli, who is in prison for securities fraud. "Prison isn't so bad," Shkreli told him. "It's bad, but it's not the worst thing."

“Glad to know that,” Kwon replied.

Kwon (top right) appeared on UpOnly in November 2022 with former hedge fund manager Martin Shkreli (top center).

Pressure Mounts

Chief Prosecutor Dan said that a few days after Kwon left Singapore, Korean investigators learned he was in Serbia through Interpol. On December 12, Seoul prosecutors publicly confirmed his whereabouts. Kwon's activity on Twitter plummeted.

Later that month, Korea formally requested Serbia to arrest and extradite Kwon.

By late January, Dan and a Korean Justice Department official flew to Belgrade. Over the next few days, they met with Serbian law enforcement. Dan recalled that the Serbians provided details of Kwon's registered companies and his internet addresses. They promised that if Kwon were caught, they would hand him over.

On February 16, the U.S. Securities and Exchange Commission (SEC) sued Kwon for fraud, alleging he lied about the stability of TerraUSD and Chai's use of blockchain. The SEC also stated that Kwon and Terraform Labs converted thousands of bitcoins into cash through a Swiss bank and withdrew over $100 million post-crash.

Kwon and Terraform Labs' lawyers criticized the SEC's lawsuit as government overreach. They denied the Swiss bank-related allegations, claiming the transfers were for business expenses, and objected to the SEC's charges regarding Chai.

On March 11, Kwon posted his final message in the Terra Rebirth League. Responding privately to a message from an admirer in a Telegram group, Kwon shared a photo of North Korean leader Kim Jong-un waving.

Two days later, The Wall Street Journal reported that the U.S. Department of Justice was also investigating the TerraUSD crash event.

Goran Rodich, Kwon's lawyer in Montenegro. Source: The Wall Street Witness

Arrest

The police stated that Kwon crossed the border into Montenegro in mid-March and staked out in Petrovac, a resort town on the Adriatic Sea.

On March 23, he and Han took a taxi to the capital's Podgorica Airport, a journey that usually takes about an hour. They paid the driver 4,000 euros (4,230 dollars), a significant sum for an ordinary Montenegrin.

After Kwon's passport triggered an alert, the police detained him and Han, who was found to be carrying a fake Costa Rican passport. Border police searched their luggage and found three laptops, five mobile phones, and another set of fake Belgian passports.

According to Minister of the Interior Adi, Kwon ruefully told the police, "Everyone is looking for me."

Adi revealed that Han protested their detention, saying, "Wherever we go, we are VIPs." Han did not respond to requests for comment through his lawyer.

Podgorica Airport in Montenegro. Photo Source: The Wall Street Journal

Hours later, a New York federal prosecutor charged Kwon with fraud. A South Korean ambassador promptly appeared in Adi's office to discuss the extradition process.

A Montenegrin court found Adi and Han guilty of using forged passports. The court sentenced them to four months in prison, with the possibility of longer detention while awaiting extradition. Kwon stated that he was unaware the passports were fake and had been deceived by the agency in Singapore that provided him with the passport.

Since his arrest, Kwon has been held in Spuz Prison, a complex of brick buildings in a valley near Podgorica. He is allowed one hour of yard time each day, which consists of a fenced yard, overgrown fields, and rocky slopes.

An insider said that after being imprisoned, Kwon reunited with his wife, tears streaming down his face, expressing regret for the trouble he had caused her and their young daughter.

On March 24, Kwon appeared in court in Podgorica. Photo credit: Reuters

Kwon attempted to pay a bail of 400,000 euros (423,000 USD), but the prosecutor opposed his request, citing a flight risk.

On June 5, a one-page letter from Kwon reached the office of Montenegro's Prime Minister, Dritan Abazović. The neatly written letter described his friendly relationship with Spaji. Spaji is a politician whom Kwon met in Belgrade and is a rival to the current Prime Minister. Spaji's party is expected to win in the upcoming election.

A copy of a document seen by The Wall Street Journal shows that the letter states Spaji tried to raise funds from Kwon and other "friends in the crypto industry."

Spaji denied asking Kwon for money. He said the letter was a setup by his political opponent and the Serbian secret police. He claimed that Spaji was deceived into writing the letter and assured Montenegrin authorities would bail Kwon out and let him escape the country. The Serbian intelligence agency did not respond to requests for comment.

The letter caused a stir, with rival politicians attacking Spaji for allegedly colluding with a cryptocurrency fugitive, while Spaji has portrayed himself as an anti-corruption crusader. Spaji's party narrowly won the election on June 11, putting him on track to become Montenegro's next Prime Minister.

Milojko Mickey Spaji speaks at a polling station in Podgorica on June 11 during the election. Photo credit: Reuters

Kwon did not deny writing the letter. His Montenegrin lawyer, Goran Rodić, stated that Kwon did not donate to Spaji. The lawyer refused to disclose further details citing an ongoing investigation.

European officials who visited the Spuz prison last year stated that the prison cells had poor ventilation and were hot in the summer. They also noted unsanitary conditions and overcrowding.

Kwon's lawyer said that on a hot summer day this year, Kwon said he would pass the time by watching TV with only a few English channels in his cell.

"Given the current weather conditions and considering the general nature of the prison, I think he's doing well," Rodi said.