Last Wednesday the Seoul Southern District Prosecutors Office issued an arrest warrant for Kwon and five other people who worked on both the currencies and Terraform Labs, the company that Kwon co-founded. Prosecutors did not list the charges, but investors have said he defrauded them in promoting the coins. TerraUSD — which used a computer program that claimed to peg its value to the U.S. dollar — and a related token known as Luna both took off in the past year, with each multiplying in value dozens of times over before crashing in May.
A Terra spokesman did not reply to a request for comment. Kwon also did not reply to a request for comment. He said on Twitter Sunday that “We are in the process of defending ourselves in multiple jurisdictions – we have held ourselves to an extremely high bar of integrity, and look forward to clarifying the truth over the next few months.”
The red-notice request was originally reported by the Financial Times.
The Kwon case is being watched closely as a sign of how aggressively law enforcement will pursue those engaged in allegedly illegal activities in the crypto space. Last month the Treasury Department issued sanctions on Tornado Cash, which helps anonymize crypto transactions, in a strong example of a crackdown on tech-based financial tools.
But the pursuit of individuals in crypto is much rarer, and Kwon’s case could be a bellwether for how other projects that lost large sums of value could be targeted in the courts — and if, eventually, some investors might claw their money back.
The 31-year-old Kwon graduated from Stanford University and briefly worked at Apple before returning to his home country several years ago to found a number of crypto projects, including Luna. Before the spring crash, Kwon was hailed as a visionary and even attracted a cult of everyday fans known as “Lunatics.”
Nor was it just retail traders — Terraform also raised money from respective financiers such as Silicon Valley VC firm Lightspeed Venture Partners.
But in May a quick sell-off began for still-unclear reasons, prompting the loss of more than $40 billion in value, according to analysis firm Elliptic, as the price of Luna plunged to nearly zero and TerraUSD went from $1 to $0.11. The collapse helped trigger a broader crypto crash that affected dozens of other assets and companies.
Bitcoin has gone from nearly $40,000 to under $20,000 since the Terra collapse, and the total market value of crypto has plummeted by more than a trillion dollars in just a few months.
Kwon made an attempt to relaunch Luna shortly after, to the outrage of many investors.
Law-enforcement experts said that they believed prosecution of the entrepreneur was possible but challenging given the vagaries of crypto, with the line in the industry between fraud and risky investment often blurry.
“If someone walks into a bank and holds it up for a lot of money with a videotape of the whole thing, well that’s a pretty clear-cut case,” said William Callahan III, a former Drug Enforcement Administration special agent who now serves as director of government and strategic affairs for a crypto company called the Blockchain Intelligence Group. “Investigating and prosecuting something like this requires a much more unique set of skills.”
He said the case against Kwon would likely turn on whether it can be proved he knowingly misled investors in stumping for the coins or was mounting a good-faith campaign for a risky-but-legal-venture.
Some evidence gathered by South Korean investigators so far, according to local media, includes allegations that Kwon and other Terraform executives decided to close their South Korea offices just a week before the currencies crashed. Kwon has said the shuttering was long in the works.
On Sunday the pursuit of Kwon took a surreal social-media turn when Kwon, outspoken on Twitter, took to the platform to deny he is a fugitive.
“I am not ‘on the run’ or anything similar – for any government agency that has shown interest to communicate, we are in full cooperation and we don’t have anything to hide,” he posted.
But the Seoul prosecutors quickly denied it. He is “obviously on the run,” the office said in a statement, according to local news media agency Yonhap.
Kwon quipped that he would only give away his coordinates if “1) we are friends, 2) we have plans to meet 3) we are involved in a gps based web3 game.”