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South Korean Authorities Issue Arrest Warrant for Fallen Crypto Star Do Kwon
Developer behind stablecoin TerraUSD and Luna has faced investigation, lawsuits after $40 billion collapse
By Jiyoung Sohn, Alexander Osipovich and Caitlin Ostroff
Sept. 14, 2022 11:43 am ET
South Korean authorities are seeking to arrest Do Kwon, the developer behind the collapsed stablecoin TerraUSD, officials said.
Mr. Kwon has faced an investigation in South Korea and investor lawsuits in U.S. courts after two cryptocurrencies that he created—TerraUSD and Luna—crashed earlier this year. The collapse erased some $40 billion in value in the two cryptocurrencies in a few days, and wiped out the savings of thousands of investors.
Groups representing more than 90 people in South Korea have filed complaints against Mr. Kwon, accusing him of fraud and illegal fundraising. The South Korea-born Mr. Kwon, who graduated from Stanford University, has recently been based in Singapore, where his company Terraform Labs is headquartered.
A spokesman for the Seoul Southern District Prosecutors’ Office said Wednesday that it has obtained arrest warrants from Seoul’s southern district court for six individuals, including Mr. Kwon.
Among the other individuals prosecutors obtained a warrant for was Terraform Labs founding member Nicholas Platias, the semiofficial Yonhap News Agency reported, citing prosecution officials. They face charges of violating the country’s capital market law, the agency reported.
A spokesman for Terraform Labs declined to comment on the news. Mr. Platias and Mr. Kwon didn’t immediately respond to requests for comment.
Prosecutors are expected to take further steps soon to have an Interpol red notice issued to repatriate them from Singapore where they are currently staying, according to Yonhap.
In an interview with The Wall Street Journal in June, Mr. Kwon denied committing fraud, saying he lost a significant amount of his own personal fortune with the collapse of TerraUSD and Luna. He voiced regret for the losses suffered by investors in his cryptocurrencies.
A so-called stablecoin, TerraUSD was supposed to maintain a one-to-one link to the dollar thanks to financial engineering. But earlier this year, the crypto equivalent of a run on the bank triggered the sudden implosion of both TerraUSD and Luna.
Mr. Kwon had been an avid proponent of TerraUSD and Luna before the collapse, boasting about the rapid rise of TerraUSD and showing disdain for critics.
In March, he referred to people who said TerraUSD could lose its dollar peg as “idiots” on Twitter. He dismissed one critic last year by tweeting: “I don’t debate the poor on Twitter, and sorry I don’t have any change on me for her at the moment.”
The swift collapse in May proved the critics correct. Unlike conventional stablecoins, which hold cash or bonds to underpin their link to the dollar, TerraUSD was a so-called algorithmic stablecoin that was backed only by the Luna cryptocurrency. Traders could essentially earn rewards in Luna for helping to maintain its link to the dollar. That structure only worked, though, if Luna itself had value.
In early May, TerraUSD dropped below $1 against the backdrop of a broad slump in Luna and other digital currencies. Mr. Kwon spearheaded an effort to prop up the stablecoin by using a $3 billion backstop fund, but the fund was swiftly depleted. Luna lost more than 99% of its value.
The collapse fueled regulatory scrutiny of stablecoins in the U.S. and beyond. It also started a chain reaction that led to the failure of crypto firms with exposure to TerraUSD or Luna, such as hedge fund Three Arrows Capital Ltd., and contributed to this year’s big selloff in bitcoin and other digital currencies.
