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(Kitco News) -
Do Kwon, the founder of Terraform Labs, has been granted bail by a Montenegro court on Friday, according to the court statement.
Kwon and Terraform’s chief financial officer Han Chang-Joon will be released from jail and placed under house arrest in an apartment in Podgorica, the capital of Montenegro, after the court accepted their lawyer’s bail proposal of 400,000 euros ($436,000) each. Both have been charged with attempting to travel using forged documents.
According to the statement, the defendants told the court they “have property worth several million,” but the bail amount would be paid by their wives. They also promised that if they are released from custody, “they will not flee before the end of the criminal proceedings, that they will regularly respond to court summons and that they will be available at the address provided by their defense attorney.”
The Montenegrin prosecutor objected to the defense’s bail proposal, arguing that “the offered amount does not guarantee the presence of the defendants” and that they “have no interest in staying in the territory of Montenegro.”
The court decided, however, that “the possibility of losing the deposited bail in the amount of EUR 400,000.00 each has a sufficiently discouraging effect on the defendants to dissuade them from any desire to escape.”
The prosecution has three days to appeal the decision.
Both the United States and South Korea are seeking Do Kwon’s extradition, but Montenegro’s 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 U.S. and South Korea have also requested Kwon’s laptops and other devices on suspicion that they might contain evidence of crimes and cryptocurrency.
Kwon and Chang-Joon were arrested at the Podgorica airport 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.
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.
On May 2, attorneys for Terraform Labs filed a motion to dismiss a U.S. class action lawsuit filed against the company, and they also took the opportunity to push back against the SEC’s charges.
The class action was filed by investor Nick Patterson in June 2022, claiming that Terraform Labs’ algorithmic stablecoin tokens UST and LUNA were actually securities, and that the company committed racketeering, mail and wire fraud.
The lawyers’ challenge echoed the now-familiar criticisms that crypto firms have been leveling against the SEC for years.
“Lead Plaintiff’s attempt to rely on the SEC’s allegations regarding the ‘Terra Tokens’ being securities is fatal,” they wrote. First off, they say Patterson cannot simply base his claim on the SEC’s allegations. Secondly, “the SEC is wrong and [the Howey test] does not apply to digital assets.” And finally, Patterson “does not adequately plead that any specific ‘Terra Token’ satisfies the Howey test.”
