Do Kwon extradited to South Korea, not the US

Do Kwon, the co-founder of bankrupt Terraform Labs, will be extradited to South Korea. Yesterday, a Montenegrin appeals court ruled on his extradition, rejecting the US request. However, it is unclear when he will be extradited to his native country.

The Appellate Court of Montenegro confirmed a previous ruling by a lower court, the High Court of Podgorica, to send Kwon to South Korea rather than the United States, which is also seeking his extradition.

Both governments want to prosecute Do Kwon on criminal charges related to the $40 billion collapse of the Terra/LUNA ecosystem in May 2022. Terra was the first domino to fall in a series of high-profile crypto company bankruptcies in 2022, including FTX, the world’s second-largest crypto exchange (then).

Kwon fled shortly after Terra collapsed. In September 2022, Interpol put out a red notice on Kwon. Six months later, in March 2023, he was detained and imprisoned in Montenegro for attempting to fly to Dubai using a fake Costa Rican passport. 

Do Kwon was initially sentenced to four months in prison for using forged documents but was freed on bail in March of this year without his real passport, which had been taken to prevent him from leaving the country.

Kwon and five other Terraform officials were wanted on suspicions of fraud and financial crimes related to the collapse of the company’s digital currencies in May 2022. TerraUSD was developed as a “stablecoin,” a currency tied to stable assets such as the dollar, to curb crypto price volatility.

In his first interview after Terra collapsed, Kwon said, “I’ve never thought about what could happen to me if this fails […] I, and I alone, am responsible for any weaknesses that could have been presented for a short seller to start to take profit”.

Kwon moved to Singapore before to the Terra crash, citing concerns for the safety of his wife and child.

According to the Office of the Supreme State Prosecutor, only Montenegro’s minister of justice can make a final judgment on where Kwon will be extradited. Bloomberg reported earlier this year that Milojko Spajic, Montenegro’s Prime Minister, is a personal investor in Terraform Labs.

Do Kwon deals with the US SEC

Kwon’s Terraform Labs denied the South Korean charges, claiming the investigation against him had become “highly politicized.” The company’s representative claimed that prosecutors were acting unfairly and that there was no legitimate basis for accusing Kwon of violating the country’s Capital Markets Act because Luna does not qualify as a security under that definition. 

The lawsuit centers on whether Luna is subject to securities law, which parallels a broader concern among officials worldwide over the validity of digital tokens.

In June, Terraform Labs and Kwon reached an agreement with the US Securities and Exchange Commission (SEC) to pay approximately $4.5 billion in restitution and civil penalties. Kwon committed to personally pay at least $204.3 million of the total sum.

Initially, the US SEC sought a $5.3 billion settlement. However, the defendants’ attorneys countered with only $1 million in civil penalties and no recovery or injunction.

In addition, Kwon and Terraform Labs will be permanently banned from purchasing and selling crypto asset securities, including tokens, in the Terra ecosystem.

Meanwhile, Terraform Labs filed for bankruptcy in Delaware, United States earlier this year. In the court petition, the now-defunct crypto exchange listed liabilities ranging from $100 million to $500 million. However, the estimated assets and liabilities are in the same range.