The Questions That Linger After Do Kwon’s Arrest


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David Z. Morris is CoinDesk’s Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

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Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

Perhaps the biggest challenge of writing about cryptocurrency is that everything is happening all the time and it’s all some mix of important, fascinating and dramatic. Case in point: The past two weeks have been so dominated by the ongoing banking crisis and crypto crackdown that I haven’t had time to luxuriate in some of the best news in recent memory – the arrest of Terra blockchain co-founder and alleged fraudster Do Kwon in Montenegro last week.

The collapse of Do Kwon’s Terra blockchain in May, remember, was the proximate catalyst for 2022’s crypto rout, helping destabilize crypto lender Celsius Network and hedge fund Three Arrows Capital in particular. If you want an entertaining recap of the story so far, check out our podcast series “Lunacy: The Rise and Fall of Do Kwon.”

This article is excerpted from The Node, CoinDesk’s daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

sThose charges, far more than usual, contained major revelations about Kwon’s activities. With his arrest, we are, I hope, on the way to learning even more.

There are still a few questions about Do Kwon that are badly in need of answers.

Why was Do Kwon in Serbia?

This is currently the most intriguing element of Do Kwon’s arrest. South Korean police reported in December they believed Kwon had fled to Serbia; he was ultimately arrested in next-door Montenegro. These are achingly beautiful countries, both high on my personal wish-list of vacation destinations – but it’s safe to assume Do Kwon had deeper motives.

In part, the choice may have been driven by simple geography. Do and Terraform Labs Chief Financial Officer Han Chang-Joon were reportedly arrested while trying to board a private jet that would have taken them to Dubai. Dubai is a popular hideout for wealthy fugitives, and the Balkans are more or less on the way there from Singapore.

But there is another hypothetical factor. The SEC alleged in its February civil charges that Do Kwon was able to sell roughly $100 million worth of bitcoin allegedly stolen from the wreckage of his project by using a Swiss bank. Do Kwon may have turned to organized crime figures for help with that effort or for protection from law enforcement, and the Balkans are a hotbed for Mafia-linked crypto fraud. That could be another explanation for his flight to Serbia.

Who gets to prosecute him?

Literally hours after Kwon was arrested in Montenegro, U.S. prosecutors filed criminal charges against him. That implies these had been in the works, but officials rushed to get them on the record so they could seek Do Kwon’s extradition to the U.S.

As former SEC enforcement officer Lisa Brancaga recently explained on CoinDesk TV, the U.S. has a claim to jurisdiction because Do Kwon targeted U.S. investors. Meanwhile, he has also been charged with fraud in his native South Korea.

That means the two nations will have to negotiate, or perhaps compete, to see who gets first crack at him. (Though both will likely have to wait until he and his compatriot are tried in Montenegro for trying to use fake passports.) Speaking in strictly moral terms, it seems right to let South Korea go after its (alleged) homegrown con man first. For one thing, while Terraform Labs targeted Americans, it seems that a far higher proportion of South Koreans were harmed by the scheme.

There is also much more potential for a thorough prosecution there, given Do Kwon’s apparent connection to elite networks in South Korea via his Terra co-founder Daniel Shin, a local tech “serial entrepreneur.” However, U.S. prosecutors might use that very factor to argue for their own claim: Do Kwon’s elite connections in South Korea might mean he has friends who can interfere with his trial.

Why were the money men so easy to trick?

This question may or may not be answered by a Do Kwon trial, but it is particularly galling: Were the investors who boosted Do Kwon really so stupid that they believed his shtick? Or was something else going on?

As we discuss in depth in our four-episode narrative podcast “Lunacy,” the terraUSD algorithmic stablecoin didn’t make any sense on paper, even leaving aside the alleged fraud that was uncovered later. This forces us to wonder whether investors, including investors specializing in crypto and seemingly well-versed in finance, simply made extremely bad bets on the Terra system or had other, less-transparent motives. That question might be most embarrassing for Mike Novogratz of Galaxy Digital, who notoriously got a LUNA tattoo.

But the SEC’s recent charges highlight one counterparty at risk of more than just embarrassment. The agency alleges that a U.S.-based trading firm was involved in a secret May 2021 bailout when the terraUSD token lost its dollar peg. The incident, the SEC says, was later used to support the fraudulent claim that the terraUSD token was self-balancing. That means it could be considered not merely a financial investment but an act in furtherance of fraud.

CoinDesk reporting has confirmed this entity was Chicago-based Jump Crypto. It is unclear why Jump has not faced legal fallout for what an ambitious prosecutor could easily characterize as aiding and abetting fraud – particularly when the firm reportedly reaped $1.28 billion in profits from its participation.

What happens to Terra? What about Terra 2.0?

Everything Do Kwon has ever touched is fundamentally worthless. I strongly recommend getting out of any financial or professional entanglements with these projects.

If you don’t believe it or don’t get it, I’ve already spent a year trying to convince you. Sorry.

Edited by Daniel Kuhn.

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David Z. Morris is CoinDesk’s Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

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