The entire process of Do Kwon's arrest: "Everyone is looking for me"

Authors: Alexander Osipovich, Jiyoung Sohn, Weilun Soon, and Drew Hinshaw, The Wall Street Journal

Compiled by: Luffy, Foresight News

Fallen cryptocurrency mogul Do Kwon is preparing to leave Montenegro. He and his colleagues arrived at the airport in this Balkan nation, where a Bombardier private jet was waiting to take them to Dubai.

Inside the VIP terminal, Kwon handed his passport to an immigration officer. The officer scanned the passport, and an alert flashed on the screen: Kwon was the target of an Interpol Red Notice—requesting police worldwide to arrest him.

Kwon had been hiding in the Balkans for months, but his luck seemed to be running out. It was March 23, and about two hours earlier, a tipster had informed Montenegro's top police officer, Interior Minister Filip Adžić, that Kwon might be in the country.

Adžić recounted the arrest process to The Wall Street Journal, stating that the tipster had sent Kwon's passport details to the minister's phone. When Adžić called the head of the border police, the police had just detained Kwon at the airport.

"Do you know who that person is?" the interior minister said he told the chief, "He's famous and has a lot of money."

In April 2022, before the collapse of TerraUSD and Luna, Do Kwon in the Seoul office of Terraform Labs. Source: Bloomberg News

U.S. and South Korean authorities have been investigating Kwon's role in one of the largest disasters in cryptocurrency history. In May 2022, the value of the two tokens he created, TerraUSD and Luna, plummeted, causing a $40 billion loss in the cryptocurrency market and triggering a chain reaction that led to the bankruptcy of several other crypto companies. Investors worldwide suffered losses.

Investigators concluded that Kwon had lied to investors and suspected he secretly possessed a vast cryptocurrency fortune. He currently faces charges in the U.S. and South Korea, including fraud and violations of capital market laws. South Korean prosecutors have stated that if convicted in South Korea, Kwon could face the longest prison sentence in the country's history for financial crimes.

Kwon denies any wrongdoing. But just before he faced possible arrest, he vanished from his luxurious high-rise apartment in Singapore. He mocked authorities by tweeting and giving interviews from undisclosed locations. Even after his arrest, he continued to stir the pot: a letter he sent from prison to the Prime Minister of Montenegro sparked a major political scandal.

The 32-year-old Kwon is now being held in solitary confinement in a Montenegrin prison. Officials discovered that the Costa Rican passport he presented at the airport was fake. The U.S. and South Korea are battling for his extradition. If sent to the U.S., he could ultimately end up in a New York prison, which currently houses another disgraced cryptocurrency mogul, Sam Bankman-Fried, whose company was fatally impacted by the TerraUSD-Luna collapse.

Descriptions of Kwon's life on the run are based on interviews with South Korean and Montenegrin officials, current and former employees of Terraform Labs, and people close to Kwon. Kwon did not respond to our request for comment through his Montenegrin lawyer.

Kwon has been held at Spuz prison in Montenegro since his arrest. Image source: The Wall Street Journal

"Stay calm, guys"

TerraUSD was a stablecoin designed to maintain a peg of $1. Cryptocurrency investors often use stablecoins as a safe haven to preserve profits from successful trades. Unlike many other stablecoins, TerraUSD did not have dollar deposits backing it. It was a so-called algorithmic stablecoin, relying on complex financial engineering and the collective efforts of traders to maintain its peg to $1.

Kwon touted TerraUSD as the core of a new monetary system free from banks and government control. Some cryptocurrency observers warned that it was a ticking time bomb.

On May 7, 2022, the price of TerraUSD began to decline, causing panic among investors. The trigger for the drop was several large withdrawals from Anchor Protocol, a pseudo-bank that offered nearly 20% annual returns on investors' TerraUSD deposits.

As TerraUSD plummeted, Kwon tweeted, "Will deploy more capital—stay calm, guys." His team deployed a $3 billion reserve fund to support the stablecoin. He scrambled to arrange a bailout, but it was all in vain. Within days, TerraUSD was nearly worthless.

Investors were furious. They had poured billions into TerraUSD, much of it deposited in Anchor, which many viewed as a savings account. Others had bet on the related token Luna, which fell more than 99%.

While Terraform Labs was headquartered in Singapore, Seoul may have been the epicenter of the turmoil. Kwon was a South Korean citizen, graduated from an elite foreign language high school in Seoul, and studied computer science at Stanford University in California. South Korean officials say about 100,000 South Koreans lost money on TerraUSD and Luna. Complaints flooded the prosecutor's office.

Leading the investigation was Dan Sung-han. The 49-year-old Dan is the head of the financial crime investigation unit at the Southern District Prosecutor's Office in Seoul, and he appears somewhat youthful. The agency is known for cracking down on stock market fraud and manipulation, and local media dubbed it the "Yeouido Grim Reaper" (referring to Seoul's financial district). "We spent a lot of time getting a deep understanding of the crypto market," Dan said.

(Left) Dan Sung-han, Southern District Prosecutor's Office; (Right) Investigators taking evidence from a cryptocurrency exchange in July 2022. Source: The Wall Street Journal

South Korean investigators raided Terraform's local office and questioned current and former employees. They obtained evidence from seven South Korean cryptocurrency exchanges and took away blue boxes filled with documents, laptops, smartphones, and another set of fake passports from Belgium.

Crypto Mogul

At the time, Kwon was living with his wife and young daughter in a luxury high-rise in Singapore called Sculptura Ardmore. His duplex apartment featured a 46-foot cantilevered outdoor swimming pool. He prepared Japanese whiskey and Cuban cigars for guests.

His daughter had just been born a few weeks earlier, and Kwon named her Luna after his cryptocurrency. "My dearest creation is named after my greatest invention," he posted a photo of the newborn on Twitter after her birth.

That summer, Kwon met friends at French and Japanese restaurants, including the Michelin three-star Les Amis. He suggested to some colleagues that they take a long trip to Europe with their families so he could remain relatively low-key in a new city.

Shortly after the financial crisis hit, he attended a party in Singapore where many attendees were cryptocurrency entrepreneurs who came to show their support for Kwon. According to a source familiar with the event, it was a lavish affair with crystal champagne and Martell XO cognac flowing freely.

Meanwhile, Kwon's investors were suffering.

The Sculptura Ardmore in Singapore. Source: The Wall Street Journal

In war-torn Ukraine, web designer Yuri Popovich said he lost $9,000 stored in TerraUSD because he did not trust banks in his country. In the UK, a 36-year-old IT consultant lost over $30,000. He said it took him two months to muster the courage to tell his wife.

In Taiwan, local media reported that a man jumped to his death from the 13th floor of an apartment building after telling friends and family he had lost about $2 million in Luna.

In June 2022, Kwon told The Wall Street Journal through a spokesperson, "The recent events have shocked me, and I hope all affected families take care of themselves and their loved ones."

A Singapore law firm, Drew & Napier, prepared to sue Kwon on behalf of a group of TerraUSD investors who claimed they had lost a total of over $50 million.

On September 6, 2022, Kwon celebrated his 31st birthday at home. His wife shared photos of him enjoying Korean food and playing with their child.

The next day, a representative from Drew & Napier arrived at Sculptura Ardmore to deliver lawsuit documents, but by then, he had already left.

Red Notice

South Korean prosecutors said Kwon flew to Dubai on September 7 and then to Serbia. He settled in the capital, Belgrade, known for its nightlife and tech industry.

Days later, South Korean prosecutors obtained an arrest warrant for Kwon on charges of violating South Korean capital market laws. After a long time, they felt immense public pressure to bring Kwon to justice. Their leader, Dan, would sometimes doze off in the office's black recliner.

Among other alleged violations, Dan's investigators focused on the relationship between Terraform Labs and Chai, a South Korean payment app that once had 2 million users.

Before the collapse, Kwon had repeatedly claimed that Chai used his company's Terra blockchain to transfer funds between users and merchants. This assertion was a key selling point for investors, who viewed Chai's use of Terra as a rare real-world application of blockchain technology. Supporters see blockchain (the underlying technology behind Bitcoin and other cryptocurrencies) as a way to empower individuals while eliminating banks and other traditional intermediaries.

But South Korean prosecutors claimed Kwon's assertions were false. They said that, in fact, Chai used traditional payment systems to settle transactions, and its use of blockchain was a ruse. Chai founder Daniel Shin's lawyer stated that Chai initially used the Terra blockchain for payments but stopped in 2020. Shin, a former business partner of Kwon, denied any wrongdoing. Kwon's lawyer defended his statements regarding Chai.

Chai founder Daniel Shin arrives at the Southern District Court in Seoul. Source: Bloomberg News

"I am not 'on the run,'" Kwon wrote on Twitter after the arrest warrant was issued on September 17. He continued to refuse to disclose his location, citing threats to his safety.

South Korean prosecutors issued a Red Notice through Interpol, requesting police worldwide to arrest Kwon.

Living in Serbia, Kwon told a cryptocurrency industry colleague that he had reached an agreement with the local government. He told another person that even after learning of the Interpol Red Notice, Serbian law enforcement still allowed him to stay. The Serbian Ministry of Interior, Ministry of Justice, Ministry of Foreign Affairs, and the main prosecutor's office did not respond to requests for comment.

Kwon continued to manage Terraform Labs behind the scenes and pushed for a long-term plan to revive the Terra blockchain. According to information obtained by The Wall Street Journal, he joked with colleagues in the Terra Rebirth League, a group on the Telegram messaging app with over 300 members.

In the early days of his stay in Belgrade, Kwon lived in an apartment near Mihailova Cemetery, a pedestrian street in downtown Belgrade known for its shops, sidewalk cafes, and 19th-century architecture, where he met with Milojko Mickey Spajić, a politician from Montenegro.

Kneza Mihailova Street in Belgrade. Source: GETTY IMAGES

Spajić told The Wall Street Journal that Kwon invited him over, and the two chatted over coffee for about an hour, discussing Kwon's ambitions to revive Terra.

The two had known each other since 2018 when Spajić (then a partner at the venture capital firm DAS Capital in Singapore) agreed to invest $75,000 in Luna. He later returned to his homeland and entered politics, hoping to turn Montenegro into a blockchain development hub.

Spajić said he was unaware at the time that Kwon was a fugitive.

According to information from the Serbian company registry, on October 12, Kwon registered a company named Codokoj22 doo Beograd, listing himself and Chang-joon Han as directors.

Han was a former executive at Terraform Labs and Chai, who later joined Kwon's efforts in the Balkans. Serbian real estate records from December 2022 show that Han owned a 4,300-square-foot apartment in a wealthy community in Belgrade.

On November 8, Kwon appeared on the podcast UpOnly. He joked with another guest (former hedge fund manager Martin Shkreli, who is in prison for securities fraud), "Prison isn't that bad," Shkreli told him. "It's bad, but it's not the worst thing."

"Good to know that," Kwon replied.

Kwon (top right) appeared on UpOnly in November 2022 with former hedge fund manager Martin Shkreli (middle right).

Pressure Mounts

Chief Prosecutor Dan said that days after Kwon left Singapore, South Korean investigators learned through Interpol that he was in Serbia. On December 12, prosecutors in Seoul publicly confirmed his whereabouts. Kwon's activity on Twitter sharply declined.

Later that month, South Korea formally requested Serbia to arrest Kwon and extradite him.

By late January of this year, Dan and a South Korean Ministry of Justice official flew to Belgrade. For several days, they met with Serbian law enforcement officials. Dan recalled that the Serbians provided him with details about Kwon's registered company and his internet address. They promised that if Kwon was caught, they would hand him over.

On February 16, the U.S. Securities and Exchange Commission sued Kwon for fraud, accusing him of lying about the stability of TerraUSD and Chai's use of blockchain. The SEC also stated that Kwon and Terraform Labs converted thousands of bitcoins into cash through a Swiss bank and withdrew over $100 million after the collapse.

Kwon and Terraform Labs' lawyers criticized the SEC's lawsuit as government overreach. They denied the allegations related to the Swiss bank, claiming the transfers were for business expenses, and contested the SEC's claims regarding Chai.

On March 11, Kwon posted his last message in the Terra Rebirth League. In a private reply to a message from a fan in the Telegram group, he shared a photo of North Korean leader Kim Jong-un waving.

Two days later, The Wall Street Journal reported that the U.S. Department of Justice was also investigating the TerraUSD collapse.

Goran Rodić, Kwon's lawyer in Montenegro. Source: The Wall Street Journal

Arrest

Police said Kwon crossed the border into Montenegro in mid-March and was hiding out in the Adriatic resort of Petrovac.

On March 23, he and Han took a taxi to the capital's Podgorica airport, a journey that typically takes about an hour. They paid the driver €4,000 ($4,230), a substantial sum for an average Montenegrin.

After Kwon's passport triggered an alert, police detained him and Han, who was also found to be in possession of a fake Costa Rican passport. Border police searched their luggage and discovered three laptops, five mobile phones, and another set of fake passports from Belgium.

According to Interior Minister Adžić, Kwon told the police in frustration, "Everyone is looking for me."

Adžić said Han protested their detention, saying, "Wherever we go, we are VIPs." Han did not respond to requests for comment through his lawyer.

Podgorica Airport in Montenegro. Photo source: The Wall Street Journal

Hours later, federal prosecutors in New York charged Kwon with fraud. A South Korean ambassador soon appeared in Adžić's office to discuss extradition procedures.

A Montenegrin court found Adžić and Han guilty of using forged passports. The court sentenced them to four months in prison but allowed them to be held longer while awaiting extradition. Kwon stated that he was unaware the passports were fake and had been deceived by the agency in Singapore that issued them.

Since his arrest, Kwon has been held at Spuz prison, a complex of brick buildings in a valley near Podgorica. He is allowed to spend one hour a day in a yard that has barbed wire, overgrown fields, and rocky hills.

A source familiar with the situation said that after his incarceration, Kwon reunited with his wife, tearfully expressing regret for the trouble he had caused her and their young daughter.

On March 24, Kwon was brought to court in Podgorica. Photo source: Reuters

Kwon attempted to post bail of €400,000 ($423,000), but prosecutors opposed his request, citing the risk of flight.

On June 5, a letter from Kwon arrived at the office of Montenegrin Prime Minister Dritan Abazović. The neatly written letter described his friendly relationship with Spajić, a politician who had met Kwon in Belgrade and was a rival of the current Prime Minister. Spajić's party was expected to win in the upcoming election days later.

A copy of the letter seen by The Wall Street Journal stated that Spajić was trying to raise funds from Kwon and other "friends in the crypto industry."

Spajić denied asking Kwon for money. He claimed the letter was a setup orchestrated by his political opponents and the Serbian secret police. He stated that he had been deceived into writing the letter, which promised that Montenegrin authorities would bail him out and allow him to escape the country. Serbian intelligence agencies did not respond to requests for comment.

The letter caused a political uproar. Rival politicians attacked Spajić for allegedly colluding with a cryptocurrency fugitive, while Spajić portrayed himself as an anti-corruption fighter. Spajić's party narrowly won the election on June 11, positioning him to become Montenegro's next Prime Minister.

Image: https://uploader.shimo.im/f/JCuepbyokFT0KAav.jpeg!thumbnail?accessToken=eyJhbGciOiJIUzI1NiIsImtpZCI6ImRlZmF1bHQiLCJ0eXAiOiJKV1QifQ.eyJleHAiOjE2OTg2NDg3MDcsImZpbGVHVUlEIjoicG1reGQ0ZGc0Z2NhNHZrTiIsImlhdCI6MTY5ODY0ODQwNywiaXNzIjoidXBsb2FkZXJfYWNjZXNzX3Jlc291cmNlIiwidXNlcklkIjoxNjQxMDY2Mn0.AFysir2sHcumrGa0U_w8HTBCiU98zdsAbtFVj4blFLw

Milojko Mickey Spajić speaking at a polling station during the election in Podgorica on June 11. Photo source: Reuters

Kwon did not deny writing the letter. His Montenegrin lawyer Goran Rodić stated that Kwon did not donate money to Spajić. The lawyer declined to provide further details, citing the ongoing investigation.

European officials who visited Spuz prison last year reported that the prison cells were poorly ventilated and stifling in the summer. They also noted poor sanitary conditions and overcrowding.

Kwon's lawyer stated that on a hot day this summer, Kwon said he would watch television in his cell, which had only a few English channels, to pass the time.

"Considering the current weather conditions and the general nature of the prison, I think he is doing well," Rodić said.

Marko Vešović, Bojan Stojkovski, Ivan Cadjenović, and Paul Kiernan contributed to this article.