Terra co-founder arrested, 4 questions that still remain[Column]| coindesk JAPAN | Coindesk Japan

The hardest thing about writing about cryptocurrencies is that everything happens all the time, and it’s a mixture of importance, interest, and drama. As evidence of this, the past two weeks have been dominated by news of banking crises and tightening regulations, and there was no time to savor the big news that Terra blockchain co-founder Do Kwon was arrested in Montenegro.

The collapse of Terra in May was a direct catalyst for the crypto slump in 2022. In particular, it forced cryptocurrency lending firm Celsius Network and hedge fund Three Arrows Capital into bankruptcy.

The US Securities and Exchange Commission (SEC) complaint contained a startling revelation about Kwon’s conduct. It is hoped that this arrest will bring more facts to light.

There are still many questions about Mr. Kwon that need answers.

Why are you in Serbia?

This is what is currently most interesting about Mr. Kwon’s arrest. South Korean police reported in December that Kwon had fled to Serbia. He was finally arrested in neighboring Montenegro. Both are very beautiful countries and are high on my personal list of places to visit, but I suspect Kwon had deeper motives.

The choice of location may have been partly due to geography. Kwon and Terraform Labs chief financial officer Han Chang-Joon were reportedly arrested as they boarded a private jet to travel to Dubai. Dubai is a popular retreat for wealthy fugitives, and the Balkans can be said to be on the route from Singapore to Dubai.

But there is one more thing that I can guess as a reason. In a civil complaint in February, the SEC said Kwon was able to use a Swiss bank to sell about $100 million worth of bitcoin he allegedly stole from his own project. It is said that Kwon may have turned to criminal gangs for that reason, or to evade police, making the Balkans a hotbed of mafia-linked cryptocurrency fraud. This may also be one of the reasons Kwon fled to Serbia.

who will sue?

Hours after Kwon was arrested in Montenegro, US prosecutors filed criminal charges against him. This means that preparations were made for it. It is now possible to demand the repatriation of Mr. Kwon to the United States.

According to former SEC official Lisa Brancaga, Kwon targeted American investors, so the United States can claim legal authority. Meanwhile, Kwon has also been accused of fraud in his home country of South Korea.

In other words, the US and South Korea will have to negotiate or compete with each other over who can pursue Mr. Kwon first. But first, he’ll have to wait for a trial in Montenegro for using a fake passport.

From a moral standpoint alone, South Korea may be right. While Terra was targeting Americans, the victims appear to be far more Korean.

Given that Kwon had connections to the South Korean elite through Terra co-founder Daniel Shin, who is also a South Korean, a more thorough pursuit could be made in South Korea. much more sexual. But US prosecutors may use that as a reason to do so in the US. It can be argued that Kwon’s connections with South Korean elites could allow such people to interfere in the trial.

Why were investors so easily duped?

This question may not be answered in Kwon’s trial, but it is a particularly frustrating one. Were the investors who praised Kwon really stupid enough to believe him? Or was there something else?

Terra’s algorithmic stablecoin, terraUSD, made no theoretical sense, even setting aside the fraud that was later revealed. So don’t wonder if investors, including those with cryptocurrency and financial savvy, made a very bad investment in Terra, or if there were other ulterior motives. I can’t stay.

But what the SEC’s complaint reveals is that one counterparty is at risk for more than just embarrassment. The SEC alleges that a US-based investment firm was involved in a covert bailout in May 2021 when terraUSD lost its dollar peg.

The incident was later used to support false claims that terraUSD was safe, the SEC said. In other words, it may be seen as an act that encourages fraud rather than just an investment.

CoinDesk has confirmed that the company is Chicago-based Jump Crypto. It is unclear why Jump has not received legal retribution for what prosecutors could easily see as aiding fraud. Especially considering that Jump reportedly made as much as $1.28 billion from it.

what about terra? What about Terra 2.0?

Everything Kwon touches is fundamentally worthless. I urge you to sever any financial or professional involvement with any project Mr. Kwon has worked on.

I’m sorry if you can’t believe or understand what I’m saying. I’ve been trying to convince you for over a year now.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
| Image: Terra co-founder Do Kwon (Terra, edited by CoinDesk)
｜Original: The Questions That Linger After Do Kwon’s Arrest