A Crypto Fugitive’s Very Public Life While on the Run
Not long after the South Korean government issued a warrant for his arrest, Do Kwon, the cryptocurrency entrepreneur who became a fugitive, joined a livestream with two popular crypto podcasters.
They had arranged for Mr. Kwon to speak alongside Martin Shkreli, the former pharmaceutical executive who was sentenced to seven years in prison for fraud. “Hey, Do,” Mr. Shkreli said on the stream in November. “I just wanted to let you know that jail’s not that bad. It’s not the worst thing ever.”
Mr. Kwon smiled and nodded. “Good to know,” he said.
On Thursday, Mr. Kwon, 31, was arrested in Podgorica, the capital of Montenegro, as he and a travel companion tried to board a private flight to Dubai, United Arab Emirates. They were apprehended after using forged Costa Rican passports, according to the authorities, and they were also carrying travel documents from Belgium that appeared to be falsified.
The arrest was the culmination of a remarkable tale of international intrigue and crypto industry chutzpah. Mr. Kwon became a target of criminal investigators in at least three countries after two cryptocurrencies issued by his company, Terraform Labs, collapsed virtually overnight.
The crash set off a market meltdown that tanked the prices of popular digital coins like Bitcoin and Ether and sent the crypto industry into crisis. In just a few days, Mr. Kwon went from industry luminary to industry villain. Some investors in his virtual currencies lost their life savings.
After his business collapsed, Mr. Kwon traveled around Europe and Asia, from Singapore to Serbia to Montenegro, while insisting on Twitter that he was not “‘on the run’ or anything similar.”
Even as the global authorities sought his arrest, Mr. Kwon gave interviews to reporters and podcasters, and he tried to revive his crypto business with a new digital coin. In a brief call with The New York Times early this month, Mr. Kwon said he hadn’t “declined requests” to share his location with the authorities.
What to Know About the Collapse of FTX
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and the former chief executive of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last year, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the price of FTT, spooked investors.
What led to FTX's collapse? Mr. Zhao’s announcement drove down the price and spooked investors. Traders rushed to withdraw from FTX, causing the company to have a $8 billion shortfall. Binance, FTX’s main rival, offered a loan to save the company but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil securities fraud charges.
“They obviously know where I am,” he said.
His arrest is now poised to set up a battle over his extradition. On Thursday, federal prosecutors in the Southern District of New York charged Mr. Kwon with eight counts of fraud. The authorities in his native South Korea have also accused him of financial crimes.
South Korea plans to “proceed with the extradition process in accordance with the law and international agreements,” the country’s Ministry of Justice said in a statement on Friday.
A year ago, Mr. Kwon was one of the richest and most powerful figures in the crypto industry. After graduating from Stanford University with a degree in computer science, he started Terraform Labs, which issued two closely linked digital currencies: TerraUSD, a stablecoin with a price of $1, and Luna, a more traditional cryptocurrency with a fluctuating value.
TerraUSD was designed to maintain its $1 value through financial engineering that connected it with Luna. The coins became wildly popular, and the value of all the Luna in circulation climbed to $40 billion as the crypto market boomed in 2021 and early 2022.
Mr. Kwon cultivated a brash persona on Twitter, dismissing critics with tweets like “I don’t debate the poor.” His passionate followers called themselves “Lunatics.” One of his prominent venture capital backers, Mike Novogratz, even had a Luna-themed tattoo of a wolf howling at the moon.
Then Mr. Kwon’s business crashed. In May, the price of Luna dropped precipitously, bringing TerraUSD down with it. The implosion erased tens of billions of dollars of value and caused a domino effect that led to the collapse of major crypto companies including FTX, the exchange founded by Sam Bankman-Fried.
Soon Mr. Kwon was the target of criminal investigations. In September, South Korean prosecutors charged him and five others with violating the country’s financial laws. Interpol, the international police organization, issued a “red notice” demanding his arrest. The police in Singapore also said they were investigating Mr. Kwon.
According to the Interpol office in Seoul, Mr. Kwon arrived in Singapore last April, before leaving for the United Arab Emirates in September, the month that South Korea issued the arrest warrant for him. Investigators believed the trip to the Emirates was a stop on the way to Serbia, where Mr. Kwon had been in hiding with Han Chang-joon, Terraform’s former chief financial officer.
Even after Luna’s epic collapse, Mr. Kwon believed he could make a comeback in the crypto industry and unveiled a new digital coin. He told an acquaintance that he aimed to make his coin one of the 10 most valuable cryptocurrencies, without linking it to a stablecoin, according to a person familiar with his thinking.
After Mr. Bankman-Fried’s company collapsed, Mr. Kwon started posting frequently on Twitter. On Dec. 7, he linked to a Times article that reported the Justice Department was investigating whether Mr. Bankman-Fried had engaged in market manipulation that caused the collapse of Luna.
“What’s done in darkness will come to light,” he wrote.
In the recent call with The Times, Mr. Kwon said he had launched some open-source projects, using a term that typically refers to software built on code that is made publicly available. “I call it, like, technology philanthropy,” he said. “It doesn’t really have business models or tokens or anything of that sort.”
But the pressure on him was growing. In February, the Securities and Exchange Commission charged him with orchestrating a multibillion-dollar securities fraud. Privately, he confided that he was having a midlife crisis, and that he was spending too much time thinking and not enough coding, according to the person familiar with his thinking.
Mr. Kwon arrived in Montenegro about 10 days ago, said Dritan Abazovic, the country’s prime minister. On Thursday, he went to the airport with Mr. Han, his Terraform colleague. They presented passports from Costa Rica, which immigration checks revealed were forgeries.
The Montenegrin police arrested Mr. Kwon and Mr. Han at 9 a.m. local time and notified the Interpol bureau in Seoul, asking for confirmation that they had correctly identified them, according to the statement by South Korea’s Justice Ministry. A fingerprint match confirmed their identities.
The Aftermath of FTX’s Downfall
The spectacular collapse of the crypto exchange in November has left the industry stunned.
During the arrest, the Montenegrin authorities confiscated the travel documents, as well as several mobile phones.
“Montenegro is giving really big support to fight against every kind of criminal,” Mr. Abazovic said in an interview on Friday. “It is our duty to try to be cooperative with other partners.”
Mr. Kwon spent Thursday night in police custody. After the arrest, he was photographed being led into a police vehicle in Montenegro, wearing a gray Nike sweater and sweatpants. He was scheduled to appear in court on Friday evening, according to his local lawyer, Branko Andelic. A representative for Mr. Kwon and Terraform Labs did not respond to a request for comment.
The next step in the case is likely to involve extradition, a complex legal process that can sometimes take months to unfold. The South Korean government said on Friday that it was planning to seek Mr. Kwon’s extradition.
The American authorities have not made any public statement about the extradition process. Representatives for the Justice Department and the U.S. attorney’s office for the Southern District of New York did not respond to requests for comment.
“We will see what is the first request, and after that we are ready to make the extradition to the country which is looking for him,” Mr. Abazovic said in the interview.
Whatever Mr. Kwon’s ultimate fate, the news of his arrest was greeted with celebrations in the crypto community, where he has become a deeply unpopular figure since the collapse of Luna and TerraUSD.
“I’ve been waiting for this moment for a long time,” tweeted one account that has tried to mobilize victims of the Luna crash.
Alisa Dogramadzieva contributed reporting.
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