The hunt for Do Kwon is over. A special edition ?

Do Kwon got arrested. In Montenegro. Where he’d been hiding from law enforcement.?

Yup, Zero Knowledge’s favourite Korean fugitive has run out of road, and now sits in custody in Podgorica, the capital of the tiny European state.??

This week’s Zero Knowledge is going to be dedicated to the caper, and what it means for the industry at large. I know I promised an investigation into the tiny, weird, American bank propping up the US crypto economy, but I’ll get to that next week.?

The background???

Do Kwon was the 31-year-old man in charge of Terraform Labs, the project behind the TerraUSD stablecoin. This was, at its peak, a $40 billion whale that had grown from zero to big bucks in little more than two years. A bit like FTX.?

While FTX was an exchange, Terra was a stablecoin, that promised users big yields if they bought and held the coin. This was fine until someone - fingers have been pointed at Jane Street, the finishing school for FTX employees - withdrew $2 billion from the coin, and began flogging it on the open market.

This large sell-off pushed the price of UST down to $0.91. So people started to purchase LUNA with UST in droves because even if the price of UST is lower than $1, 1 UST can always be redeemed against 1$ worth of LUNA. In theory.

However, at the same time, the overall crypto market was seeing a sharp downturn, which was forcing the price of LUNA down. So much so LUNA couldn’t support the exodus from UST and everything fell over, eyewateringly fast. The price collapsed by more than 99%, as seen below.

Now that might seem like the price of doing business in crypto, but Do Kwon went into hiding, which sounded a bit odd. But then rumors started to swirl that maybe he wasn't the innocent party he was claiming to be. So a chase began.?

The chase???

At first, everyone believed he was in Singapore, and to a large extent, it appeared he was. He even proved it by walking around in shorts and sandals in the b-roll for a no holds barred interview about the crash. But that was in September.

Shortly afterward, Interpol posted a red notice, which is the modern-day equivalent of a “Wanted: Dead or Alive” poster. Disclaimer: I’m pretty sure Interpol wouldn’t be pleased if someone flopped Do Kwon’s corpse on the desk of the Interpol receptionist.

After that, South Korean authorities stripped Kwon of his passport, presumably to make it harder for Mr. Kwon to move around. Kwon went quiet, occasionally popping into the internet to do interviews online, protesting his innocence. Rumours said he’d made it to Dubai where Terraform Labs, his company, had a base. But again, that was 2022.

This year, we hadn’t seen much of Kwon’s slightly absent-looking mug. Until he decided to pop back onto Twitter to, again, protest his innocence, and, of course, blame Twitter for the witch hunt.

The rumour mill continued to mill those rumours, and some suggested he’d fled to Serbia in December. South Korean authorities said in response that the allegations weren’t untrue (someone tell South Korea’s press office that double negatives are a real no-no), but again, nothing seemed to come of it.

But then last month, a new tidbit emerged that South Korean officials traveled to Serbia asking law enforcement for assistance in finding Kwon’s hidey-hole.

A few weeks later, and Kwon’s in chains.

The arrest ??

Do Kwon was apprehended on Thursday morning by local enforcement. He was traveling with Han Chang Joon, Terraform’s chief financial officer. According to reports, they were arrested for trying to fly to Dubai under falsified Costa Rican traveling documents.?

Twitter watchers found that Kwon’s appearance in Montenegro was at the exact same time as an Eth conference in the country. Maybe he was staging a comeback???

Now, Mr. Kwon and Mr. Joon have no ties to the central American state whatsoever, so of course, questions were raised. When local law enforcement began searching Kwon’s bags, they found false Belgian papers, three laptops, and five mobile phones between the two. That’s a lot of technology for someone trying to lay low. But when you’re living off the proceeds of ill-gotten gains, sometimes you need to mix it up a bit, you know??

What happens now????

Within hours of the arrest, a grand jury in Manhattan charged Kwon with an eight-count indictment, including securities fraud, commodities fraud, and conspiracy.?

The US criminal charges come a month after the Securities and Exchange Commission sued Kwon, accusing him and Terraform of offering and selling unregistered securities.

These are also on top of the warrant for his arrest by both South Korean authorities and Interpol. South Korea’s police force has asked Montenegro to extradite Kwon to the Asian nation. Both countries fall under the European Convention on Extradition, so it’s entirely possible.

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However, there’s now chatter that the US has entered the extradition chat, and could be seeking to have a crack at Kwon first because it has a beefier capacity to seize assets and property in criminal cases, meaning it could be better placed to claw back the billions Kwon stole from his own company before he went on the run.?

Now, Kwon can fight the extradition order. He can ‘waive’ the extradition and return to a country willingly, or he can demand a hearing on the request, in which the US, or South Korea would have to present all evidence of what he did wrong.?

But seeing how Montenegro has no ties to Kwon, or sees him as strategically important, it seems unlikely anyone would be willing to fight the US on this.?

2023: The year crypto pays its dues???

Law enforcement is coming for crypto, and the US is leading the way. Last month featured a significant increase in US moves against crypto businesses. Paxos, crypto exchange Kraken, and of course Do Kwon were all named in enforcement cases. But they weren’t done.

This week, the Securities and Exchange Commission kicked off actions against three more crypto companies. Sushi DAO, the organization behind the decentralized crypto exchange,? received subpoenas from the watchdog.?

Justin Sun, the poor man’s SBF has been hit with fraud charges and other alleged securities law violations, and Coinbase was served with a Wells notice, a document revealing an intent to sue the company over some of its products.

The goal, according to various statements, is to course correct the wild abandon by which crypto projects have been allowed to operate in recent years, and hopefully, jail those who have been responsible for stealing everyone’s money.?

Some are arguing it's a political witch hunt. Others say it's long overdue.

Bitcoin meanwhile, seems non-plussed and sits at nine-month highs. Make of that what you will.?

Thanks for joining us, normal service will resume next week.

I love you all. ??