The whole process of Do Kwons arrest: Everyone is looking for me
Original article by Alexander Osipovich, Jiyoung Sohn, Weilun Soon and Drew Hinshaw, The Wall Street Journal
Original compilation: Luffy, Foresight News
Fallen cryptocurrency tycoon Do Kwon is preparing to leave Montenegro. He and his colleagues arrived at the airport in the small Balkan country, where a Bombardier business jet was waiting to take them to Dubai.
Inside the VIP terminal, Kwon handed his passport to an immigration official. The immigration officer swiped the passport and an alert flashed across the screen: Kwon was the subject of an Interpol Red Notice — asking police around the world to arrest him.
Kwon has been hiding in the Balkans for months, but his luck seems to be running out. That day was March 23, about two hours before an informant told Montenegros top police officer, Interior Minister Filip Adžić, that Kwon might be in the country.
Adžić, who described the arrest to The Wall Street Journal, said the informant sent Kwons passport details to the interior ministers phone. When Adžić called the border police chief, police had just detained Kwon at the airport.
Do you know who that guy is? the interior minister said he told the chief. Hes famous and he has a lot of money.
Do Kwon at Terraform Labs’ Seoul office in April 2022, before TerraUSD and Luna collapsed. Source: Bloomberg News
U.S. and South Korean authorities have been investigating Kwon’s role in one of the biggest disasters in cryptocurrency history. In May 2022, the value of the two tokens he created, TerraUSD and Luna, plummeted, costing the cryptocurrency market $40 billion and triggering a chain reaction that led to the bankruptcy of a series of other crypto companies. Investors around the world suffered losses.
Investigators concluded that Kwon lied to investors and suspected that he secretly owned a massive cryptocurrency fortune. He currently faces charges in the United States and South Korea, including fraud and violating capital markets laws. If convicted in South Korea, Kwon could face the longest prison sentence in the countrys history for financial crimes, South Korean prosecutors said.
Kwon denies fraud. But just before he faced possible arrest, he disappeared from his home in a luxury high-rise building in Singapore. He mocked the authorities by tweeting and giving interviews from undisclosed locations. Even after his arrest, he continued to stir up drama: a letter he sent from prison to Montenegros prime minister sparked a major political scandal.
Kwon, 32, is now being held in solitary confinement in a Montenegro prison. Officials discovered that the Costa Rican passport he presented at the airport was fake. The United States and South Korea are fighting over his extradition. If sent to the United States, he could end up in a New York prison that now houses another disgraced crypto tycoon, Sam Bankman-Fried, whose company was fatally hit by the TerraUSD-Luna collapse Influence.
This account of Kwons life on the run is based on interviews with South Korean and Montenegrin officials, current and former Terraform Labs employees, and people close to Kwon. Kwon did not respond to CNNs request for comment from his Montenegrin lawyer.
Kwon has been held in Spuz prison in Montenegro since his arrest. Image source: Wall Street Journal
Hold on, boys.
TerraUSD is a stablecoin designed to maintain a pegged price of $1. Cryptocurrency investors often use stablecoins as a safe haven to preserve profits from successful trades. TerraUSD differs from many other stablecoins in that it is not backed by U.S. dollar deposits. It is a so-called algorithmic stablecoin that relies on complex financial engineering and the collective efforts of traders to maintain its peg to $1.
Kwon praised TerraUSD as the core of a new monetary system that is not controlled by banks and governments. Some cryptocurrency observers warn this is a ticking time bomb.
On May 7, 2022, the price of TerraUSD began to decline and investors panicked. The decline was triggered by several large withdrawals from the Anchor Protocol, a pseudo-bank that offers investors nearly 20% annual returns on their TerraUSD deposits.
When TerraUSD plummeted, Kwon tweeted: More capital will be deployed - hold on guys. His team used a $3 billion reserve fund to support the stablecoin. He was busy arranging rescue, but all in vain. Within days, TerraUSD was close to zero.
Investors were furious. They poured billions of dollars into TerraUSD, with much of it deposited into Anchor, which many view as a savings account. Some others were betting on the related token Luna, which fell more than 99%.
Although Terraform Labs is headquartered in Singapore, Seoul may be the epicenter of this shock. Kwon is a Korean citizen who graduated from an elite foreign language high school in Seoul and studied computer science at Stanford University in California. South Korean officials claim that approximately 100,000 South Koreans have lost money on TerraUSD and Luna. Complaints poured into the prosecutors office.
Leading the investigation is Dan Sung-han. Dan, 49, the head of the Financial Crimes Investigation Bureau of the Southern District Prosecutors Office in Seoul, looks a little boyish. Local media dubbed the agency the Youido Grim Reaper (referring to Seouls financial district) because of its crackdown on stock market fraud and manipulation. “It took us a lot of time to develop a deep understanding of the crypto market,” Dan said.
(Left) Dan Sung-han, Seoul Southern District Prosecutor’s Office; (right) Investigators taking away evidence from a cryptocurrency exchange in July 2022. Source: Wall Street Journal
South Korean investigators raided Terraforms local offices and questioned current and former employees. They seized evidence from seven South Korean cryptocurrency exchanges and took away blue boxes filled with documents, laptops, smartphones and external hard drives.
crypto tycoon
At the time, Kwon was living in the Sculptura Ardmore high-rise mansion in Singapore with his wife and young daughter. His duplex features a 46-foot-long cantilevered outdoor swimming pool. He prepared Japanese whiskey and Cuban cigars for his guests.
His daughter was born a few weeks ago and Kwon named her Luna after his cryptocurrency. My dearest creation is named after my greatest invention, he tweeted with a photo of the newborn after her birth.
That summer, Kwon met friends at French and Japanese restaurants, including the three-Michelin-starred Les Amis. He proposed to some colleagues a long trip to Europe with his family so that he could remain relatively unknown in a new city.
Shortly after the financial crisis, he attended a party in Singapore, where many attendees were cryptocurrency entrepreneurs who came to express their support for Kwon. According to a person familiar with the matter, it was a free-flowing feast of Cristal Champagne and Martell XO Cognac.
Meanwhile, Kwons investors are suffering.
Ardmore Sculpture Gallery, Singapore. Source: Wall Street Journal
In war-torn Ukraine, web designer Yuri Popovich said he lost $9,000 he had in TerraUSD because he didnt trust the countrys banks. In the UK, a 36-year-old IT consultant lost more than $30,000. He said it took him two months to work up the courage to tell his wife.
In Taiwan, local media reported that a man committed suicide by jumping from his 13th-floor apartment after telling friends and family that he had lost approximately $2 million on Luna.
In June 2022, Kwon told the Wall Street Journal through a spokesperson, I am shocked by recent events and hope that all affected families can take care of themselves and their loved ones.
Drew Napier, a Singaporean law firm, is preparing to sue Kwon on behalf of a group of TerraUSD investors who say they have collectively lost more than $50 million.
On September 6, 2022, Kwon celebrated his 31st birthday at home. His wife shared photos with friends of him enjoying a Korean meal with her and playing with their children.
The next day, a representative from Drew Napier arrived at Sculptura Ardmore to deliver him the legal documents, but by then he had left.
red notice
South Korean prosecutors said that on September 7, Kwon flew to Dubai and then to Serbia. He settled in the capital, Belgrade, known for its nightlife and tech industry.
Days later, South Korean prosecutors obtained an arrest warrant for Kwon on charges of violating South Koreas capital markets law. Over time, they felt intense public pressure to bring Kwon to justice. Their leader, Dan, sometimes takes naps on the black recliner in his office.
Dans investigators focused on the relationship between Terraform Labs and Chai, among other alleged violations. Chai is a South Korean payment app that at one point had 2 million users.
Before the collapse, Kwon had repeatedly claimed that Chai used his companys Terra blockchain to transfer funds between users and merchants. The claim is a key selling point for investors, who view Chais use of Terra as a rare real-world use case for blockchain technology. Proponents see blockchain, the underlying technology behind Bitcoin and other cryptocurrencies, as a way to empower individuals while eliminating banks and other traditional middlemen.
But South Korean prosecutors claim Kwons account is wrong. In fact, they say, Chai uses traditional payment systems to settle transactions and its use of blockchain is a scam. Chai initially used the Terra blockchain to process payments but stopped in 2020, a lawyer for Chai founder Daniel Shin said. Shin, Kwons former business partner, has denied wrongdoing. Kwons attorney defended his remarks about Chai.
Chai founder Daniel Shin arrives at the Seoul Southern District Court. Source: Bloomberg News
I am not on the run, Kwon wrote on Twitter after the arrest warrant was issued on September 17. He still refuses to reveal his location, citing threats to his safety.
South Korean prosecutors issued a red notice through global police agency Interpol, asking police around the world to arrest Kwon.
Kwon, who lives in Serbia, told a crypto industry colleague that he had reached an agreement with the local government. He told another that Serbian law enforcement allowed him to stay even after learning of the Interpol red notice. Serbias interior ministry, justice ministry, foreign ministry and main prosecutors office did not respond to requests for interviews.
Kwon continues to manage Terraform Labs behind the scenes and drives a long-term plan to revitalize the Terra blockchain. According to information obtained by The Wall Street Journal, he joked with colleagues in the Terra Rebirth League, a group on the Telegram messaging app with more than 300 members.
Early in his stay in Belgrade, Kwon lived in an apartment near Mikhailova Cemetery, a pedestrian street in the center of Belgrade known for its shops, sidewalk cafes and 19th-century architecture , said Milojko Mickey Spajić, a politician from Montenegro where he met Kwon.
Kniezmikhailova Street in Belgrade. Source: GETTY IMAGES
Spajić told the Wall Street Journal that Kwon invited him to visit, and the two chatted for about an hour over coffee about Kwons ambitions to revive Terra.
The two have known each other since 2018, when Spajić, then a Singapore-based partner at venture capital firm DAS Capital, agreed to invest $75,000 in Luna. He later returned to his home country and entered politics, hoping to make Montenegro a center for blockchain development.
Spajić said he did not know Kwon was a fugitive at the time.
According to information from the Serbian Companies Registry, on October 12, Kwon registered a company called Codokoj 22 doo Beograd, listing himself and Chang-joon Han as directors.
Han is a former executive at Terraform Labs and Chai who later joined Kwon in the Balkans. Serbian real estate records from December 2022 show that Han owned a 4,300-square-foot apartment in a wealthy neighborhood in Belgrade.
On November 8, Kwon appeared on the UpOnly podcast. He joked with another guest, former hedge fund manager Martin Shkreli, who is in prison on securities fraud charges. Prison isnt that bad, Shkreli told him. Its bad, but its not the worst thing.
Thats good to know, Kwon replied.
Kwon (top right) appears on UpOnly in November 2022 with former hedge fund manager Martin Shkreli (top center).
The pressure is getting bigger
Chief Prosecutor Dan said days after Kwon left Singapore, South Korean investigators learned through Interpol that he was in Serbia. On December 12, Seoul prosecutors publicly confirmed his whereabouts. Kwons activity on Twitter has dropped dramatically.
Later that month, South Korea formally asked Serbia to arrest Kwon and extradite him.
By late January this year, Dan flew to Belgrade with a South Korean Ministry of Justice official. For several days, they met with Serbian law enforcement officials. Dan recalls that the Serbian told him the details of Kwons registered company and his Internet address. They promised that if Kwon was caught, they would hand him over.
On February 16, the SEC charged Kwon with fraud, accusing him of lying about TerraUSD’s stability and Chai’s use of the blockchain. The SEC also said Kwon and Terraform Labs converted thousands of Bitcoins into cash through a Swiss bank and withdrew more than $100 million after the crash.
Lawyers for Kwon and Terraform Labs criticized the SECs lawsuit as government overreach. They denied the UBS-related charges, saying the transfers were for business expenses, and disputed the SECs charges against Chai.
On March 11, Kwon posted his final message in Terra Rebirth League. In a private reply to a message from an admirer in a Telegram group, Kwon posted a photo of North Korean leader Kim Jong Un raising his hands in greeting.
Two days later, the Wall Street Journal reported that the U.S. Department of Justice was also investigating the TerraUSD collapse.
Goran Rodić, Kwon’s lawyer in Montenegro. Source: Wall Street Insights
arrest
Police said Kwon crossed the border into Montenegro in mid-March and took up residence in the Adriatic resort of Petrovac.
On March 23, he and Han took a taxi to the capital Podgorica Airport, a journey that usually takes about an hour. They pay the driver 4,000 euros ($4,230), which is a lot of money for the average Montenegrin.
After Kwons passport triggered an alarm, police detained him and Han, who was also found to be in possession of a fake Costa Rican passport. Border police searched their luggage and found three laptops, five mobile phones and another set of fake passports from Belgium.
According to Interior Minister Adžić, Kwon told police in frustration that everyone is looking for me.
According to Adžić, Han protested their detention: Wherever we go, we are VIPs. Han did not respond to a request for comment through his lawyer.
Podgorica Airport in Montenegro. Photo credit: Wall Street Journal
Hours later, federal prosecutors in New York filed fraud charges against Kwon. A South Korean ambassador soon showed up at Adžićs office to discuss extradition proceedings.
A Montenegrin court found Adžić and Han guilty of using forged passports. The court sentenced them to four months in prison, but they can be held longer while awaiting extradition. Kwon said he did not realize the passports were fake and that he had been deceived by the agency in Singapore that gave him the passports.
Since his arrest, Kwon has been held in Spuz Prison, a group of brick buildings in a valley near Podgorica. He can spend an hour a day in a yard with barbed wire, overgrown fields and rocky hillsides.
A person familiar with the matter said that after his imprisonment, Kwon reunited with his wife in tears and expressed regret for the trouble he had caused his wife and young daughter.
On March 24, Kwon was brought to court in Podgorica. Photo credit: Reuters
Kwon tried to post bail of 400,000 euros ($423,000), but prosecutors opposed his request, saying he was a flight risk.
On June 5, a one-page letter from Kwon arrived at the office of Montenegrin Prime Minister Dritan Abazovic. The letter, neatly written, describes his friendly relationship with Spajić. Spajić is a politician who met Kwon in Belgrade and is a rival of the current prime minister. Spajićs party is expected to win the election in a few days time.
The letter said Spajić was trying to raise money from Kwon and other “friends in the crypto industry,” according to a copy of the document seen by The Wall Street Journal.
Spajić denied asking Kwon for money. He said the letter was a hoax orchestrated by his political opponents and the Serbian secret police. He said Spajić was deceived into writing the letter, promising that Montenegrin authorities would bail him out and allow him to flee the country. Serbian intelligence agencies did not respond to requests for comment.
The letter caused an uproar. Rival politicians have attacked Spajić, who has cultivated an image as an anti-corruption crusader, for allegedly colluding with a cryptocurrency fugitive. Spajićs party narrowly won the June 11 election, putting him on track to become Montenegros next prime minister.
Milojko Mickey Spajić speaks at a polling station during the elections in Podgorica on June 11. Photo credit: Reuters
Kwon did not deny that he wrote the letter. His Montenegrin lawyer Goran Rodić said Kwon did not donate money to Spajić. The attorney declined to provide further details, citing an open investigation.
European officials who visited Spuz prison last year said its cells were poorly ventilated and sweltering in the summer. They also noted poor sanitation and overcrowding.
One sweltering day this summer, Kwon said, to pass the time, he would watch television in his cell, which had only a few English-language channels, his lawyer said.
Given the current weather conditions and considering the general nature of the prison, I think he did a good job, Rodić said.
Marko Vešović, Bojan Stojkovski, Ivan Cadjenović and Paul Kiernan contributed to this article.
