A few hours after his arrest in Montenegro, the South Korean founder of the cryptocurrency Terra, Do Kwon, was charged Thursday, March 23 for fraud by the American justice, according to documents that AFP was able to consult.
A federal jury in New York has retained no less than eight charges against the 31-year-old man, accused of various types of fraud, including online fraud, organized gang, in connection with the crash of his cryptoasset, resulting in a loss of nearly $ 40 billion for investors.
According to the indictment, Do Kwon "willfully misled investors about many aspects of the Terra blockchain, including the technology used and the extent of its adoption by users."
He was arrested earlier in the day in Montenegro, along with his chief financial officer, Hon Chang Joon, according to the Balkan country's interior minister. "Police in Montenegro have arrested a person suspected of being one of the world's most wanted fugitives, South Korea's Do Kwon, co-founder and CEO of Terraform Labs," Filip Adzic said on Twitter.
The two men were arrested at the airport in the capital, Podgorica, in possession of "forged documents", as they sought to board for Dubai using fake Belgian and Costa Rican passports.
Both men were the subject of an arrest warrant issued by their country of origin. "We are waiting for official confirmation of his identity," Adzic said.
Interpol issued a red notice in September to locate him, at the request of South Korean prosecutors. The prosecutor's office had asked the Foreign Ministry in Seoul to revoke his passport, saying Do Kwon was "on the run."
The US stock market watchdog, the SEC, had for its part filed a lawsuit in mid-February against Do Kwon for having "orchestrated a fraud of several billion dollars in crypto assets".
Unassured currency stability
Beyond the heavy loss recorded by investors, the fall of Terraform Labs and Terra had shaken the global cryptocurrency market, the first of many tremors that have affected this sector in a year.
Terraform Labs offered a so-called stablecoin, or "stablecoin", the Terra. In principle, the price of a stablecoin is backed by that of a traditional currency or tangible assets, which guarantees investors more stability in the highly volatile universe of cryptocurrencies.
However, the stability of some of these cryptocurrencies is not ensured by currency reserves, but by an algorithm that makes trade-offs based on the supply and demand of another cryptocurrency. This was the case of the Terra, which was backed by the cryptoasset developed by the Luna Foundation Guard.
"A fraud inflated by an algorithmic pseudo 'stablecoin'"
For the SEC, Terraform and Do Kwon have repeatedly fooled investors" by claiming that a popular Korean payment app had used the technology behind the Terra to settle transactions that would increase the value of the Luna.
The Terraform Labs system "was simply a fraud inflated by an algorithmic pseudo 'stablecoin', the price of which was controlled by the defendants, and not by any computer code," said Gurbir Grewal, a senior SEC official.
By April 2022, the value of the Terra had reached its highest level. According to CoinMarketCap, it was then the fourth largest stablecoin and the tenth largest cryptocurrency in terms of market value. A month later, the Terra had lost more than half of its value in just 24 hours, sowing a wave of panic.
Very quickly, the stablecoin and its sister token Luna fell to zero, hitting the savings of many small investors. South Korean authorities have since opened several criminal investigations into the case.
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