(Bloomberg) -- Terraform Labs co-founder Do Kwon, who presided over a more than $40 billion cryptocurrency implosion last year, was arrested in Montenegro and charged with fraud by US prosecutors.
The developments came just over a month after the US Securities and Exchange Commission sued the 31-year-old as well as Terraform Labs. It is unclear whether his arrest was at the request of US authorities. He also faces an arrest warrant in South Korea on securities-law violations.
Kwon was detained in Podgorica along with Han Chang-joon while trying to fly to Dubai using falsified Costa Rican traveling documents, Montenegro’s Interior Ministry said in a statement Thursday.
The two were also found with Belgian and South Korean travel documents, the ministry said. The Belgian papers were falsified, according to Interpol. Police took three laptops and five mobile phones from the pair, the ministry said.
Kwon’s whereabouts have been the source of constant speculation since September, when authorities in his native South Korea issued a warrant for his arrest on allegations including breaches of capital-markets law. The country has stripped him of his passport and said he’s the subject of an Interpol red notice.
Kwon found himself at the center of one of the crypto sector’s most damaging episodes last May, when the TerraUSD stablecoin he helped create and its sister token Luna suddenly cratered. That event set off a chain of failures across the digital-assets space that culminated with the bankruptcy of Sam Bankman-Fried’s FTX six months later. Outfits from hedge fund Three Arrows Capital to lender Celsius Network toppled along the way.
- Read more: All The Ways That Crypto Broke in 2022
Kwon didn’t immediately respond to efforts to contact him via Telegram message and email. Representatives of Terraform Labs did not respond to a request for comment. The entrepreneur has previously denied wrongdoing and that he was a fugitive from justice. South Korean prosecutors and police couldn’t immediately be reached after regular hours.
A successor to the Luna token fell more than 7% after news of the arrest before recouping some losses, according to CoinGecko.
In February, the SEC turned up the heat on Kwon when it alleged in federal court that Terraform Labs and Kwon offered and sold unregistered securities, including the stablecoin, and carried out a scheme that wiped out at least $40 billion worth of market value.
- Read more: SEC Sues Terraform, Kwon Over Stablecoin in Crypto Collapse
The TerraUSD stablecoin was meant to keep a constant value of $1. Unlike other similar tokens that rely on a reserve of liquid assets, the system used on a complex mix of algorithms and trader incentives involving Luna. But it unraveled when confidence in Kwon’s project evaporated during a few chaotic days in early May. Cryptocurrencies swooned, and didn’t recover until early this year.
The prosecutors’ office in Seoul early December said Kwon was reportedly in the landlocked Balkan nation Serbia, a few weeks after indicating that he had flown to Dubai likely as a stopover to destinations unknown after exiting Singapore, where his Terraform Labs project had a base.
Prosecutors have also sought to freeze digital assets allegedly linked to Kwon.
Exactly what sparked the implosion of Kwon’s project remains a mystery. US authorities were investigating possible links to Bankman-Fried, whose FTX exchange and trading house Alameda Research spiraled into bankruptcy in November.
--With assistance from Emily Nicolle, Jasmina Kuzmanovic, Jan Bratanic and Vildana Hajric.
(In third paragraph, fixes the name of the person detained alongside Do Kwon to correct a mispelling in official statement from Montenegro’s Interior Ministry)
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