It's the end of a long run for Do Kwon, a former crypto star.
The founder of Terraform Labs had been on the run for several months to escape the South Korean authorities.
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South Korean regulators had issued an arrest warrant against him after the sudden collapse of the cryptocurrencies Luna and UST or TerraUSD last May. Do Kwon is a South Korea native.
On May 9, sister cryptocurrencies Luna and UST crashed after UST lost its peg to the dollar, the foundation qualifying it as a stablecoin. Such cryptocurrencies are claimed to be tied to more stable assets, like the U.S. dollar or gold.
Major Liquidity Crisis
From May 9 to May 13, at least $55 billion of market cap disappeared, causing many investors to sustain colossal losses.
UST was an algorithmic stablecoin, which was backed not by dollar reserves but rather by its sister asset, Luna. Algorithmic stablecoins are different from centralized alternatives like tether or USD coin, which are backed by actual dollars or equivalent assets stored in a bank.
This disaster caused a credit crunch that proved catastrophic for many firms, including hedge fund Three Arrows Capital, or 3AC, which found itself unable to honor its payments to crypto lenders Celsius Network and Voyager Digital.
3AC was forced into liquidation. Celsius and Voyager filed for Chapter 11 bankruptcy.
The de-pegging of Terra’s UST coin and the collapse of Celsius and 3AC a few weeks later drove massive losses for investors: $20.5 billion in the case of UST and $33 billion in the case of Celsius and 3AC, according to blockchain security firm Chainalysis.
This crisis mainly revealed the links and exposure of crypto firms to each other, like the banks during the financial crisis of 2008. The other lesson was the lack of transparency of centralized crypto companies, which are mostly unregulated.
Do Kwon was at the center of investigations by South Korean and American authorities who are accusing him of fraud linked to Luna and UST. Last September, South Korea reached out to global law enforcement agency Interpol, which for its part issued a so-called Red Notice for Kwon.
A Red Notice is a request to law enforcement agencies worldwide to locate a person and provisionally arrest them pending extradition, surrender or similar measure in accordance with the law, the agency said.
The notices generally are issued for fugitives. Interpol issues them at the request of a member country and must comply with the organization's statute and rules.
Kwon Arrested in Montenegro
"ONE OF THE WORLD'S MOST WANTED FUGITIVES WAS ARRESTED IN PODGORICA," the capital city of Montenegro, the country's minister of interior Filip Adzic posted on Twitter in Serbian. "Montenegrin police have detained a person suspected of being one of the most wanted fugitives, South Korean citizen Do Kwon, co-founder and CEO of Singapore-based Terraform Labs."
Adzic's Twitter account is unauthenticated but is followed by Prime Minister of Montenegro Dritan Abazovic who retweeted the post about Do Kwon. Abazovic's Twitter account is authenticated.
Adzic added that "the former 'cryptocurrency king,' who is behind losses exceeding 40 billion dollars, was detained at the Podgorica airport with falsified documents, and he is wanted by South Korea, the USA and Singapore. We are waiting for official confirmation of identity."
Last June, employees of Terraform Labs reportedly told the U.S. Securities and Exchange Commission that Do Kwon was cashing out $80 million a month before the UST and Luna tokens crashed.
According to the reports, the employees said they predicted the collapse of Terra and Luna and pointed out the danger to Do Kwon several times, but they were ignored.
The SEC reportedly found that a few months before Terra collapsed, about 100 billion won, or $78.1 million, of company funds went out every month for operating expenses.
The federal agency is investigating whether the marketing of UST before it crashed violated federal investor protection regulations.
In his first interview after the collapse of Luna and UST, Do Kwon said he was cooperating with the authorities on their investigations.
