Last Wednesday, prosecutors in Seoul’s Southern District issued an arrest warrant for Kwon and five other people who worked on both the currencies and Terraform Labs, the company Kwon co-founded. Prosecutors did not list the charges, but investors have said he defrauded them to market the coins. TerraUSD — which used a computer program that claimed to peg its value to the US dollar — and a related token known as Luna both took off in the past year, each multiplying in value dozens of times before crashing in May.
A spokesman for Terra did not respond to a request for comment. Kwon also did not respond to a request for comment. He said on Twitter on Sunday that “We are in the process of defending ourselves in multiple jurisdictions – we have held ourselves to an extremely high bar of integrity, and look forward to clarifying the truth over the next few months.”
The red alert request was originally reported by the Financial Times.
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The Kwon case is being watched closely as a sign of how aggressively law enforcement will pursue those engaged in allegedly illegal activities in the crypto space. Last month, the Treasury Department issued sanctions against Tornado Cash, which helps anonymize crypto transactions, in a stark example of a crackdown on technology-based financial tools.
But the hunt for individuals in crypto is much rarer, and Kwon’s case could be a bellwether for how other projects that have lost large amounts of value can be targeted in the courts — and if some investors can eventually claim their money back.
The 31-year-old Kwon graduated from Stanford University and worked briefly at Apple before returning to his home country several years ago to found a number of crypto projects, including Luna. Before the spring crash, Kwon was hailed as a visionary and even attracted a cult of everyday fans known as “Gulninger.”
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It wasn’t just retailers, either — Terraform also raised money from respective financiers like Silicon Valley VC firm Lightspeed Venture Partners.
But in May, a rapid sell-off began for reasons that remain unclear, leading to a loss of more than $40 billion in value, according to research firm Elliptic, as the price of Luna plunged to near zero and TerraUSD went from $1 to $0.11. The collapse helped trigger a broader crypto crash that affected dozens of other assets and companies.
Bitcoin has gone from nearly $40,000 to under $20,000 since the Terra collapse, and the total crypto market cap has dropped by more than a trillion dollars in just a few months.
Kwon made an attempt to relaunch Luna shortly after, to the chagrin of many investors.
Law enforcement experts said they believed prosecuting the founder was possible but challenging given crypto’s vagaries, with the line in the industry between fraud and risky investments often blurred.
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“If somebody walks into a bank and holds it up for a lot of money with a videotape of it all, well that’s a pretty clear case,” said William Callahan III, a former special agent for the Drug Enforcement Administration who now serves as director of government and strategic affairs for a crypto company called Blockchain Intelligence Group. “Investigating and prosecuting something like this requires a much more unique set of skills.”
He said the case against Kwon is likely to turn on whether it can be proven that he deliberately misled investors to stumble upon the coins or launched a good-faith campaign for a risky-but-legal venture.
Some evidence gathered by South Korean investigators so far, according to local media, includes allegations that Kwon and other Terraform executives decided to close their South Korea offices just a week before the currencies crashed. Kwon has said that the formwork was a long time in the works.
On Sunday, the hunt for Kwon took a surreal turn on social media when Kwon, outspoken on Twitter, took to the platform to deny that he is a fugitive.
“I’m not ‘on the run’ or anything like that – for any government agency that has shown an interest in communicating, we are in full cooperation and we have nothing to hide,” he posted.
But prosecutors in Seoul quickly dismissed it. He is “apparently on the run,” the office said in a statement, according to local news media agency Yonhap.
Kwon said he would only give out his coordinates if “1) we’re friends, 2) we have plans to meet up 3) we’re involved in a gps-based web3 game.”