South Korean cryptocurrency entrepreneur Do Kwon, co-founder of Terraform Labs, is set to be extradited to the United States following a decision by Montenegro’s Ministry of Justice. The ruling concludes a protracted legal struggle between the US and South Korea, both vying for Kwon’s extradition after the catastrophic collapse of TerraUSD and Luna tokens. These events wiped out approximately $40 billion (£31.7 billion) in investments and destabilised global cryptocurrency markets.
Montenegro, which lacks formal extradition treaties with either nation, resolved the matter through its court system. Justice Minister Bojan Božović approved the US’s request, citing legal criteria that favoured their claim. Kwon had consented to extradition to both countries, but the US ultimately secured priority.
Fraud Allegations and SEC Charges
In February 2023, the US Securities and Exchange Commission (SEC) charged Kwon and Terraform Labs with orchestrating a multi-billion-dollar fraud. SEC Chairman Gary Gensler accused Kwon of misleading investors about the stability of TerraUSD and promising inflated returns on the associated Luna token.
“We allege that Terraform and Do Kwon failed to provide the public with full, fair, and truthful disclosure as required,” Gensler said. The rapid collapse of TerraUSD in May 2022 triggered a market-wide sell-off, including significant declines in Bitcoin and other cryptocurrencies, compounding the damage.
International Manhunt and Arrest
Interpol issued a “red notice” for Kwon’s arrest in September 2022. He fled Singapore as his business imploded, relocating to Serbia before being apprehended in Montenegro in March 2023. Kwon was arrested at Podgorica Airport while attempting to board a flight to Dubai using forged documents. In June, he received a four-month prison sentence in Montenegro for falsifying official papers.
Kwon’s former finance officer, Hon Chang-joon, faced similar charges and was extradited to South Korea earlier this year after serving a comparable sentence in Montenegro.
Ripple Effects on Crypto Markets
The downfall of Terraform Labs has had lasting repercussions on the cryptocurrency sector, raising questions about regulatory oversight and market stability. TerraUSD’s algorithmic structure, designed to maintain a stable value, collapsed in what critics describe as a “death spiral” when market conditions turned volatile. Investors’ losses highlighted the risks of unregulated digital asset markets and prompted calls for stricter controls.
As Kwon faces trial in the US, industry observers hope the proceedings will bring clarity and accountability to a space often criticised for its opacity.
