Contained in the VIP terminal, Kwon handed his passport to an immigration officer, who swiped it. An alert flashed throughout the officer’s display screen. Kwon, it stated, was the goal of an Interpol purple discover—a request to police world wide to arrest him.
Kwon had been mendacity low within the Balkans for months, however his luck was operating out. About two hours earlier that day, March 23, a tipster had individually warned Montenegro’s high cop, Inside Minister Filip Adžić, that Kwon was probably within the nation.
The tipster despatched Kwon’s passport particulars to the inside minister’s cellphone, in keeping with Adžić, who recounted the arrest for The Wall Road Journal. When Adžić known as the border police chief, officers had simply detained Kwon on the airport.
“Are you aware who that individual is?” the inside minister stated he instructed the chief. “He’s well-known and he has some huge cash.”
U.S. and South Korean authorities had been investigating Kwon over his position in one of many greatest disasters in cryptocurrency historical past. In Might 2022, two tokens that he created, TerraUSD and Luna, crashed in worth. The implosion erased $40 billion from the cryptocurrency markets and triggered a sequence response that pushed different digital-asset companies out of business. Buyers world wide misplaced their financial savings.
The investigators concluded that he lied to buyers, and suspected he was secretly sitting on a crypto fortune. He now faces costs in each the U.S. and South Korea, together with fraud and violations of capital-markets legal guidelines. Prosecutors in South Korea have stated that if convicted there, Kwon would probably face the longest jail time period for a monetary crime within the nation’s historical past.
Kwon denied committing fraud. However simply earlier than he confronted potential arrest, he vanished from his house in a Singapore luxurious high-rise. He taunted authorities by tweeting and giving interviews from his undisclosed location. Even after his seize, he stored stirring up drama: A letter he despatched from jail to Montenegro’s prime minister unleashed a significant political scandal within the tiny U.S. ally.
The 32-year-old Kwon now sits in a Montenegrin jail, the place he’s stored in isolation. Officers discovered that the Costa Rican passport he confirmed on the airport was a faux. The U.S. and South Korea are battling for his extradition. If despatched to the U.S., he would probably find yourself in the identical New York jail that now homes Sam Bankman-Fried—one other disgraced crypto tycoon, whose firms have been fatally weakened by fallout from the TerraUSD-Luna crash.
This account of Kwon’s life on the lam is predicated on interviews with officers in South Korea and Montenegro, present and former workers of his firm, Terraform Labs, and folks near Kwon. He didn’t reply to requests for remark given to his Montenegrin lawyer.
‘Regular lads’
TerraUSD was a stablecoin, designed to take care of a value of $1. Crypto buyers usually use stablecoins as a haven to avoid wasting earnings from profitable trades. TerraUSD differed from many different stablecoins as a result of it wasn’t backed by {dollars} in a financial institution. A so-called algorithmic stablecoin, it relied on sophisticated monetary engineering and the collective efforts of merchants to maintain its $1 peg.
Kwon hailed TerraUSD because the centerpiece of a brand new financial system, uncontrolled by banks and governments. Some crypto observers warned it was a ticking time bomb.
On Might 7, 2022, its value started to slide, spooking buyers. The set off for the decline was a number of large withdrawals from Anchor Protocol, a form of pseudo-bank that provided buyers annual returns of practically 20% for TerraUSD deposits.
“Deploying extra capital – regular lads,” Kwon tweeted as TerraUSD tumbled. His staff tapped a $3 billion reserve fund to bolster the stablecoin. He scrambled to rearrange a bailout. Nothing labored. Inside days, TerraUSD was price pennies.
Buyers have been livid. That they had poured billions into TerraUSD, placing most of it in Anchor, which many handled as a financial savings account. Others had gambled on Luna, a associated coin that fell greater than 99%.
Whereas Terraform Labs was primarily based in Singapore, Seoul was maybe the crash’s epicenter. Kwon, a South Korean citizen who graduated from an elite foreign-language highschool in Seoul and studied laptop science at Stanford College in California, had been a determine of nationwide satisfaction. Some 100,000 South Koreans misplaced cash on TerraUSD and Luna, officers there say. Complaints flooded into prosecutors’ places of work.
It was Dan Sung-han’s job to guide the investigation. A boyish-looking 49-year-old, Dan heads the Monetary Crime Investigation Bureau of the Seoul Southern District Prosecutors’ Workplace. Native media have dubbed the unit the Grim Reaper of Yeouido, referring to Seoul’s monetary district, for its fights in opposition to stock-market fraud and manipulation.
“It took us a great period of time to construct a strong understanding of the crypto market,” Dan stated.
The South Korean investigators raided Terraform’s native workplace. They questioned present and former workers. They seized proof from seven South Korean crypto exchanges, hauling away blue packing containers filled with paperwork, laptops, smartphones and exterior onerous drives.
Crypto excessive curler
Kwon on the time was residing along with his spouse and toddler daughter within the Sculptura Ardmore, a ritzy Singapore high-rise. His duplex condominium included a 46-foot-long cantilevered out of doors swimming pool. He stored Japanese whisky and Cuban cigars available for friends.
The child had been born simply weeks earlier than the crash. Kwon named her Luna, after his cryptocurrency. “My dearest creation named after my best invention,” he tweeted simply after her start, posting an image of the new child.
That summer season, Kwon met mates at French and Japanese eating places together with Les Amis, with three Michelin stars. He mused to some associates about visiting Europe along with his household on an prolonged journey, so he might be comparatively nameless in a brand new metropolis.
At one celebration he attended in Singapore, not lengthy after the crash, most of the attendees have been crypto entrepreneurs who got here to indicate their assist for Kwon. Cristal Champagne and Martell XO cognac flowed freely, in keeping with one individual aware of the occasion.
In the meantime, Kwon’s buyers have been struggling.
In war-torn Ukraine, internet designer Yuri Popovich stated he misplaced $9,000 that he had stashed in TerraUSD as a result of he didn’t belief his nation’s banks. In Britain, a 36-year-old IT guide misplaced greater than $30,000. He stated it took him two months to muster the braveness to inform his spouse. He took a job as a window cleaner to pay the payments.
In Taiwan, native media reported {that a} man fell to his dying from his Thirteenth-floor condominium in an obvious suicide, after telling mates and kinfolk that he had misplaced some $2 million on Luna.
Kwon instructed the Journal by a spokesman in June 2022, “I’ve been devastated by current occasions and hope that every one the households who’ve been impacted are caring for themselves and those who they love.”
A Singapore legislation agency, Drew & Napier, ready to sue Kwon on behalf of a bunch of TerraUSD buyers who stated they collectively misplaced greater than $50 million.
On Sept. 6, 2022, Kwon marked his thirty first birthday at house. His spouse shared photographs with mates of him having fun with a Korean meal together with her and enjoying with their child.
The subsequent day, a consultant of Drew & Napier arrived on the Sculptura Ardmore to serve him with lawsuit papers—however he was already gone.
Pink discover
On Sept. 7, Kwon flew to Dubai, after which Serbia, South Korean prosecutors say. He settled within the capital, Belgrade, identified for its nightlife scene and tech sector.
Days later, South Korean prosecutors obtained a warrant for Kwon’s arrest on costs that he had violated the nation’s capital-markets legislation. That they had labored lengthy hours, feeling intense public stress to convey Kwon to justice. Dan, their chief, generally napped on a black recliner in his workplace.
Amongst different alleged irregularities, Dan’s investigators zeroed in on the connection between Terraform Labs and Chai, a South Korean fee app that at one level boasted two million customers.
Earlier than the crash, Kwon had repeatedly claimed that Chai used his agency’s Terra blockchain to maneuver funds between customers and retailers. The declare was a key promoting level for buyers, who noticed Chai’s use of Terra as a uncommon real-world use of blockchain know-how. Proponents see blockchain—the underlying know-how behind bitcoin and different cryptocurrencies—as a strategy to empower people whereas slicing out banks and different conventional middlemen.
However Kwon’s declare was false, South Korean prosecutors alleged. In actuality, they stated, Chai used conventional fee methods to settle transactions and its use of blockchain was a sham. Legal professionals for Chai founder Daniel Shin stated Chai initially used the Terra blockchain to course of funds, however stopped in 2020. Shin, a former enterprise companion of Kwon’s, has denied wrongdoing. Legal professionals for Kwon have defended his statements about Chai.
“I’m not ‘on the run’ or something related,” Kwon tweeted on Sept. 17 after information of the arrest warrant. He nonetheless refused to disclose his location, citing threats to his safety.
South Korean prosecutors filed a purple discover by Interpol, the worldwide policing physique, successfully asking cops worldwide to seize Kwon.
From Serbia, Kwon instructed one crypto-industry affiliate that he had a take care of the native authorities. He instructed one other that Serbian legislation enforcement allowed him to stay even after studying in regards to the Interpol purple discover.
Serbia’s Inside Ministry, Justice Ministry, Overseas Affairs Ministry and essential public prosecutor’s workplace didn’t reply to interview requests.
Kwon continued to handle Terraform Labs from hiding, and pushed a long-shot plan to revive its Terra blockchain. He joked with colleagues in Terra Rebirth League, a bunch on the Telegram messaging app with over 300 members, in keeping with messages seen by the Journal.
Early in his keep in Belgrade, Kwon lived in an condominium close to Knez Mihailova, a pedestrian avenue in central Belgrade identified for its outlets, sidewalk cafes and Nineteenth-century structure, stated Milojko “Mickey” Spajić, a politician from Montenegro who met Kwon there.
Spajić instructed the Journal that Kwon invited him for a go to, and the 2 spent about an hour chatting over espresso, together with about Kwon’s ambitions to revive Terra.
The 2 had identified one another since 2018, when Spajić—then a Singapore-based companion with venture-capital agency DAS Capital—agreed to speculate $75,000 in Luna. He later returned to his homeland and entered politics, and hoped to show Montenegro right into a blockchain improvement hub.
Spajić stated he didn’t know on the time that Kwon was a fugitive.
On Oct. 12, Kwon registered an organization known as Codokoj22 d.o.o. Beograd, itemizing himself and Chang-joon Han as administrators, in keeping with Serbia’s company registry.
Han was a former Terraform Labs and Chai govt who joined Kwon within the Balkans. Serbian real-estate information from December 2022 present Han owned a 4,300-square-foot condominium in an prosperous neighborhood of Belgrade.
On Nov. 8, Kwon made an look on UpOnly, a livestreamed crypto podcast. He bantered with one other visitor: Martin Shkreli, the previous hedge-fund supervisor who had been imprisoned on securities-fraud costs.
“Jail’s not that dangerous,” Shkreli instructed him. “It sucks, however it’s not the worst factor ever.”
“Good to know,” Kwon replied.
The stress builds
Inside days of Kwon’s departure from Singapore, investigators in South Korea discovered by Interpol bureaus that he was in Serbia, stated Dan, the top prosecutor. On Dec. 12, prosecutors in Seoul publicly confirmed his whereabouts. Kwon’s exercise on Twitter dropped off sharply.
Later that month, South Korea formally requested Serbia to arrest Kwon and extradite him.
In late January, Dan and a South Korean Justice Ministry official flew to Belgrade. Over a number of days, they met Serbian law-enforcement officers. The Serbians shared particulars on the corporate Kwon had included and his web deal with, Dan recalled. They promised at hand over Kwon if he was caught.
On Feb. 16, the U.S. Securities and Change Fee sued Kwon for fraud, accusing him of mendacity in regards to the stability of TerraUSD and Chai’s use of blockchain. The company additionally stated Kwon and Terraform Labs transformed hundreds of bitcoin into money by way of a Swiss financial institution, and withdrew greater than $100 million after the crash.
Legal professionals for Kwon and Terraform Labs criticized the SEC’s lawsuit as authorities overreach. They denied the Swiss financial institution allegations, saying the cash transfers have been for enterprise bills, and disputed the SEC’s allegations about Chai.
On March 11, Kwon posted his remaining message in Terra Rebirth League. Replying to a message from an admirer within the non-public Telegram group, Kwon posted an image of North Korean chief Kim Jong Un elevating his hand in a triumphal greeting.
Two days later, the Journal reported that the U.S. Justice Division was additionally investigating the TerraUSD crash.
Arrest
Kwon slipped throughout the border into Montenegro in mid-March and hunkered down in Petrovac, a resort city on the Adriatic Sea, police say.
On March 23, he and Han took a taxi to the airport within the nation’s capital of Podgorica, a drive that normally takes about an hour. They paid their driver 4,000 euros ($4,230), an enormous sum for peculiar Montenegrins.
After Kwon’s passport triggered the alert, officers detained him and Han, who was additionally discovered to have a faux Costa Rican passport. Border police searched the lads’s baggage and located three laptops, 5 telephones and yet another set of pretend passports from Belgium.
“Everyone seems to be on the lookout for me,” a downcast Kwon instructed the officers, in keeping with Adžić, the inside minister.
Han protested their detention, in keeping with Adžić, saying, “We’re VIPs in all places that we go.” Han didn’t reply to requests for remark by his attorneys.
Hours later, federal prosecutors in New York filed fraud costs in opposition to Kwon. A South Korean ambassador quickly confirmed up at Adžić’s workplace to debate extradition proceedings.
A Montenegrin courtroom convicted Kwon and Han for utilizing cast passports. It sentenced them to 4 months in jail, however they are often held longer as they await extradition. Kwon has stated he didn’t notice the passports have been faux, and that he was swindled by the company in Singapore that obtained them for him.
Since his arrest, Kwon has been confined to Spuž jail, a cluster of brick buildings in a valley close to Podgorica. He’s allowed outdoor for one hour a day in a yard surrounded by a barbed-wire fence, overgrown fields and a rock-strewn mountainside.
After being jailed, Kwon had a tearful reunion along with his spouse, through which he expressed remorse for the difficulty he had brought about her and their younger daughter, an individual aware of the matter stated.
Kwon tried to publish bail of 400,000 euros ($423,000), however prosecutors opposed his request, calling him a flight threat.
On June 5, a one-page letter from Kwon arrived on the workplace of Montenegrin Prime Minister Dritan Abazović. The letter, in Kwon’s tidy handwriting, described his pleasant ties with Spajić, the politician who had met Kwon in Belgrade—and a rival of the incumbent prime minister. Spajić’s celebration was anticipated to win an election days away.
The letter stated Spajić tried to lift funds from Kwon and different “mates within the crypto {industry},” in keeping with a replica seen by the Journal.
Spajić denied asking Kwon for cash. He stated the letter was a trick masterminded by his political foes and the Serbian secret police. He steered that Kwon was duped into writing the letter with a promise that Montenegrin authorities would free him on bail and let him escape the nation. Serbia’s intelligence company didn’t reply to a request for remark.
The letter prompted an uproar. Rival politicians attacked Spajić, who had constructed up a picture as a corruption fighter, saying he had cozied as much as a crypto fugitive. Spajić’s celebration narrowly gained the June 11 election, placing him on observe to grow to be Montenegro’s subsequent prime minister.
Kwon hasn’t disputed that he wrote the letter. His Montenegrin lawyer, Goran Rodić, stated Kwon didn’t donate to Spajić. The lawyer declined to share extra particulars, citing an open investigation.
European officers who visited Spuž jail final yr stated its cells have been poorly ventilated and stiflingly scorching within the summertime. Additionally they famous poor hygiene and overcrowding.
To occupy his time, Kwon watches tv with a restricted variety of English-language channels in his cell, his lawyer stated throughout a sweltering day this summer season.
“Contemplating the present climate situations, and contemplating the overall nature of being in jail, I believe he’s doing OK,” Rodić stated.
Marko Vešović, Bojan Stojkovski, Ivan Cadjenovic and Paul Kiernan contributed to this text.
Write to Alexander Osipovich at alexo@wsj.com, Jiyoung Sohn at jiyoung.sohn@wsj.com, Weilun Quickly at weilun.quickly@wsj.com and Drew Hinshaw at drew.hinshaw@wsj.com
