Montenegro court clears crypto chief Do Kwon for extradition

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Do Kwon, the entrepreneur behind the $40bn collapse of crypto token TerraUSD, can be extradited to either the US or South Korea to answer fraud charges following a court ruling in Montenegro.

The Balkan country has held the South Korean cryptocurrency executive since June after he tried to leave the country on a forged passport.

Kwon sparked an international manhunt when he fled an investigation in his native country into the sudden implosion last year of the TerraUSD and its sister token, luna. Their collapse sparked a crypto market crash that swept up a host of lenders, like Voyager Digital and Celsius Network.

He was caught as he tried to leave Podgorica airport on a Costa Rican passport and sentenced to four months in prison in Montenegro. Kwon is sought by both the US and South Korea on fraud charges.

As more than one country has appealed for Kwon’s extradition, the minister of justice in Montenegro will determine which one has priority, said the Higher Court in Podgorica on Friday. The minister of justice did not immediately respond to a request for comment.

The US has charged Kwon with eight criminal counts, including securities, commodities and wire fraud. He also faces civil charges from the Securities and Exchange Commission for allegedly arranging a cryptocurrency fraud that led to billions of dollars in losses in April 2018 and May 2022.

US prosecutors accused him of “deceiving” individuals about aspects of the Terra blockchain, including “its technology and the extent to which it had been adopted by users”.

Kwon and his company Terraform Labs operated the TerraUSD stablecoin, a type of token designed to connect traditional and crypto markets and make it easier to trade digital coins.

Most track the value of the dollar one for one but TerraUSD’s value was supposed to be kept in line by algorithmic coding, so it did not need to be backed by hard assets.

The ensuing market crisis elevated Kwon’s status as one of the crypto industry’s most infamous executives. After he fled the investigation, Interpol issued a red notice against Kwon, representing a worldwide plea to law enforcement for his arrest. 

In September last year, South Korea also issued an arrest warrant for the fallen crypto executive over allegedly violating capital market rules following the collapse of the tokens. His South Korean passport was also revoked.

The failure of TerraUSD also prompted renewed scrutiny from regulators on stablecoins, which underpin the majority of crypto trading. US Treasury secretary Janet Yellen said following the token’s collapse that “this simply illustrates that this is a rapidly growing product and there are rapidly growing risks”.