...and is definitely not an enormous grift that's pouring lighter fluid on our already smoldering planet.
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Kwon and his company were behind the algorithmic stablecoin, Terra, which dramatically collapsed in May 2022, sending huge ripple effects throughout the ecosystem. He and his company had lied about the stability of the token, ultimately causing massive financial damage to the tune of around $40 billion.
Kwon is in custody in Montenegro after attempting to flee criminal cases in both the United States and South Korea. The civil case in the US proceeded without him.
Despite all of that, Terraform Labs had continued to operate. However, it is now in dire financial straits, and has now filed for Chapter 11 bankruptcy in an attempt to sort out its financial obligations amid costly legal cases. Terraform Labs is currently a defendant in a complaint by the SEC, as well as several class-action lawsuits.
According to the company's bankruptcy filing, it has between $100 million and $500 million in assets, and liabilities in the same range.
This is a major decision in the crypto world, which recently celebrated a decision in the SEC v. Ripple case, which found that some sales of Ripple's XRP token did not constitute unregistered securities offerings.
The SEC has maintained a position that the majority of crypto asset offerings are securities offerings, which has been an unpopular opinion among those in the cryptocurrency industry — which broadly does not wish to be regulated by the SEC.
Kwon filed a last-ditch appeal of the extradition decision on December 6. A decision is scheduled on the matter by December 15. Milovic is unlikely to publicly announce Kwon's extradition destination until then.
Both South Korea and the United States have sought Kwon's extradition on criminal charges related to the Terra/Luna scheme. Federal prosecutors in the Southern District of New York indicted Kwon on eight fraud and market manipulation charges in March 2023. He and his company also face a civil lawsuit from the Securities and Exchange Commission.
According to the grand jury indictment, Shetty planned to put the funds into cryptocurrency positions that "could have yielded returns of 20 percent or more annually", and planned to return 6% to Fabric, keeping the difference. This so-called "investment" contradicted the conservative investment strategy that Shetty had helped to draft for Fabric, and he concealed both the existence of the transfer and his involvement with HighTower.
Shetty "lost virtually all of [Fabric's] money" "within a matter of weeks", at which point he fessed up to Fabric. Shetty had placed all of the funds into protocols based around the Terra stablecoin, which collapsed dramatically only a month later.
Shetty has pled not guilty, and has been released on bond.
The criminal charges out of the US add to civil charges he's facing from the SEC, as well as an investigation out of South Korea.
After the collapse, Kwon became a fugitive. South Korea issued a warrant for his arrest in September, and Interpol issued a red notice. However, he's remained on the lam for some time, reportedly hiding in Serbia for a time — a country with no extradition agreement with South Korea.
Now, officials in Montenegro have announced they arrested Do Kwon, who was attempting to travel through the country using falsified documents. Montenegro is a Balkan country bordering Serbia.
According to the SEC, Kwon "repeatedly misled and deceived investors" about the characteristics and stability of Terra and Luna, and tricked investors into believing that a popular Korean mobile payments platform used the Terra blockchain.
Kwon has been on the run from the law since Korean authorities filed a warrant for his arrest in September 2022. An Interpol red notice followed soon after. He is reportedly hiding out in Serbia, and Korean authorities reportedly traveled there in early February to hunt for him.
Kwon claims that the report is a "falsehood", and "I don't know whose funds they've frozen". This joins his other claims, such as that he is "not 'on the run' or anything similar" (he is), and that Interpol didn't issue a red notice for him (they have).
Kwon and the others named in the warrant are currently in Singapore. In June, Korea banned current and former Terraform Labs employees from leaving the country, and in July Korean authorities raided multiple exchanges in connection to their investigation.
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