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Terraform's Do Kwon could serve consecutive decades-long sentences in South Korea and U.S.

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(Kitco News) - The lead prosecutor of South Korea’s investigation into the collapse of Terraform Labs said that company founder Do Kwon could serve decades-long consecutive prison sentences in both his native country and the United States.

Kwon and Terraform’s chief financial officer Han Chang-Joon were arrested in Montenegro on Mar. 23 after being caught attempting to travel to Dubai under fake Costa Rican traveling documents. The pair also had Belgian and South Korean travel documents, and Montenegrin authorities said the Belgian documents were also forged.

Dan Sunghan, director of the financial crime investigation bureau at the Seoul Southern District Prosecution Service, told Bloomberg that Kwon could conceivably be tried and sentenced in South Korea, then “be extradited to the US and face trial there, and then have the sentence executed in South Korea and the US after that.”

Dan said that he expects Kwon to get a record-setting financial fraud sentence in excess of 40 years, and he believes that the former executive should be extradited to his country first. “This is the largest financial fraud or financial securities fraud case that has ever happened in South Korea,” he said.

Both the United States and South Korea are seeking Kwon’s extradition, and the countries have also requested Kwon’s laptops and other devices on suspicion that they might contain evidence of crimes and cryptocurrency.

The pair have since been released on bail against the wishes of Montenegrin prosecutors and are confined to Chang-Joon’s apartment in Podgorica awaiting trial. Justice Minister Marko Kovac indicated on March 29 that crimes committed in his country will take precedence.

“Primacy is given to the court proceedings led in Montenegro,” Kovac told journalists through an interpreter. “If they are convicted for the criminal offense of falsifying identification documents, only after they served their prison sentence is it expected that they will be extradited.”

The pressure to capture Kwon had been mounting since he fled his native South Korea following the collapse of the Terra ecosystem in May 2022, with a South Korean court issuing an arrest warrant on Sept. 17 and Interpol issuing a Red Notice two weeks later.

The United States was the latest entity to target Kwon with criminal charges. On Feb. 17, the U.S. Securities and Exchange Commission (SEC) charged Do Kwon with securities fraud, writing that Kwon and Terraform orchestrated “a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.”

The SEC said Terraform and Kwon “touted and marketed Terra USD (UST) as a ‘yield-bearing’ stablecoin, which they advertised as paying as much as 20 percent interest through the Anchor Protocol,” and that they “repeatedly misled and deceived investors that a popular Korean mobile payment application used the Terra blockchain to settle transactions that would accrue value to LUNA.”

The complaint also alleges that Kwon and others at Terraform “misled investors about UST’s stability before it ultimately depegged from the U.S. dollar and became nearly worthless.”

The SEC said that Kwon transferred over 10,000 Bitcoin from Terraform Labs to an offline cold wallet and converted some of the tokens into cash via a Swiss bank. The agency claims Kwon and other insiders have drawn from the cold wallet several times since the collapse of the stablecoin project.

“We can see that it’s coming out of the wallet,” Dan said, “but we are not aware who might be in possession of the cold wallet or how they’re withdrawing it, on what methods.”

It is not yet clear whether Montenegro will end up extraditing Kwon to South Korea or the United States once their justice system is finished with him.

“It’s our understanding that the extradition process can take up to nine months, depending on how long the suspect has been in custody and so forth,” Dan said.

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