Casey Wagner

Terraform Labs founder Do Kwon has been indicted in the US on fraud charges hours after <a href="https://blockworks.co/news/do-kwon-arrested">his arrest in Montenegro</a>.&nbsp;



A grand jury in New York federal court charged Kwon with securities fraud, wire fraud and commodities fraud, the indictment shows.&nbsp;



<a href="https://blockworks.co/tag/do-kwon">Kwon</a> also has pending federal cases in the Southern District of New York with the <a href="https://blockworks.co/tag/sec">SEC</a>. The securities regulator <a href="https://blockworks.co/news/sec-charges-do-kwon-terraform-labs-with-fraud-misleading-investors">charged Kwon</a> with an alleged unregistered security offering last month.



The crypto executive was first served with a subpoena from the SEC in November 2021. Kwon and Terraform then countersued the agency challenging the subpoenas, citing alleged violations to due process law.&nbsp;



Montenegrin authorities may hand Kwon over to the US, based on prior agreements. The country has “provided significant assistance” in extraditions to the US, the Department of Justice said in November 2022.&nbsp;



Montenegro will only extradite on bilateral agreement and will transfer the person who has been granted extradition within 30 days, according to the <a href="https://rm.coe.int/16803ab7f1#:~:text=Citizen%20of%20Montenegro%20can%20be,of%20the%20decision%20on%20extradition.">Council of Europe</a>.&nbsp;



Kwon is still wanted by government officials in South Korea, who issued a warrant for his arrest in October 2022.



Terraform Labs’ stablecoin, TerraUSD (<a href="https://blockworks.co/price/ust">UST</a>), rocked crypto markets with its sudden collapse last year. The fall of UST, and its sister coin, <a href="https://blockworks.co/price/luna">LUNA</a>, led to billions of dollars in losses for investors.



The US Department of Justice <a href="https://blockworks.co/news/doj-terrausd-stablecoin">is reportedly investigating UST’s failure</a>, alleging that Kwon and his company misled investors about the stablecoin’s risks.



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Do Kwon Indicted on Fraud Charges in New York

Sebastian Sinclair

The US Justice Department is reportedly investigating the demise of stablecoin TerraUSD (UST), adding to the possibility of criminal charges for stablecoin creator Do Kwon.



The stablecoin’s collapse last year resulted in billions of dollars in losses for investors.



The department’s probe follows the Securities and Exchange Commission’s (SEC) recent <a href="https://blockworks.co/news/sec-charges-do-kwon-terraform-labs-with-fraud-misleading-investors">civil fraud lawsuit</a> against Kwon and his company, Singapore-based Terraform Labs, the <a href="https://www.wsj.com/articles/justice-department-probes-collapse-of-do-kwons-terrausd-stablecoin-10bd5ffb" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> reported Monday.



The Department of Justice did not immediately return a request for comment.



Both the SEC and the Justice Department allege Kwon and Terraform Labs misled investors about the risks of the stablecoin.&nbsp;



Neither Terraform labs, nor Kwon, could immediately be reached.



The SEC lawsuit accuses Kwon and Terraform Labs of deceiving the public by claiming that the South Korean payment app, Chai, was using Terraform&#8217;s blockchain to process transactions when it was not.



The Justice Department&#8217;s investigation is said to cover similar ground, with investigators reportedly looking into the relationship between Chai and Terraform&#8217;s blockchain technology.



Adding to mounting regulatory scrutiny, the Federal Bureau of Investigation (FBI) and the Southern District of New York have also been questioning former members of Kwon&#8217;s team and are seeking to interview others in connection with the case.



TerraUSD was designed to maintain a price of $1, but it lost its peg in May 2022, leading to a series of events that wiped out roughly $40 billion in market value.



Kwon, who is a <a href="https://blockworks.co/news/do-kwon-claims-indifference-over-losing-south-korean-passport">South Korean national</a>, has denied any wrongdoing and has said he too lost money when TerraUSD collapsed.&nbsp;



It is not clear what specific charges the US Justice Department is pursuing, and prosecutors could potentially drop the investigation without filing charges, according to the report.



This is not the first investigation to be launched into the collapse of TerraUSD. Prosecutors in South Korea obtained an <a href="https://blockworks.co/news/south-korea-issues-arrest-warrant-for-terra-ceo-do-kwon-report">arrest warrant</a> for Kwon last year and Singapore police have also said that they are investigating Terraform Labs.&nbsp;



Kwon left Singapore in September 2022 and has reportedly been traveling since then. He has <a href="https://blockworks.co/news/where-in-the-world-is-do-kwon-terra-ceo-says-im-not-on-the-run">denied</a> that he is <a href="https://blockworks.co/news/terra-founder-kwon-not-on-run-now-serbia-prosecutor">on the run</a> and has cited security concerns as the reason for not disclosing his location.



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DOJ Investigating TerraUSD Over Stablecoin Collapse: WSJ

Shalini Nagarajan

<div id="highlights-block_62da89dc71a08" class="highlights">
 <ul>
 <li>Crater falsely promoted My Big Coin as a virtual currency backed by gold, oil and other valuable assets, the DOJ said</li>
 <li>He claimed to have a partnership with MasterCard and that the coins could be exchanged for fiat money</li>
 </ul>
 
</div>



The founder of obsolete cryptocurrency business My Big Coin was convicted Thursday on charges he made false claims to investors by marketing and selling a fraudulent virtual currency that netted him $6 million.



Randall Crater, a 51-year-old resident of East Hampton, New York, offered virtual payment services through a fake digital asset which he promoted to investors through fabrications about its nature and value, the US Department of Justice said in an <a href="https://www.justice.gov/opa/pr/my-big-coin-founder-convicted-cryptocurrency-fraud-scheme" target="_blank" rel="noreferrer noopener">announcement</a> Thursday.



Crater and his associates claimed “My Big Coin” was backed by $300 million in gold, oil and other valuable assets, the DOJ said. He also claimed to have a partnership with payments giant <a href="https://cms.blockworks.co/tag/mastercard/" target="_blank" rel="noreferrer noopener">Mastercard</a> and that the currencies could easily be exchanged for fiat money or other virtual assets. 



<blockquote class="wp-block-quote">“In reality, Coins were not backed by gold or other valuable assets, did not have a partnership with MasterCard and were not readily transferable,” the DOJ statement said.</blockquote>



He is believed to have spent hundreds of thousands of investor funds on antiques, artwork and jewelry. Crater has now been convicted of four counts of wire fraud and three counts of money laundering. His sentencing is scheduled for Oct. 27.



Thursday’s charge emerged from a 2018 lawsuit by the <a href="https://cms.blockworks.co/tag/cftc/" target="_blank" rel="noreferrer noopener">Commodity Futures Trading Commission</a>, which led to one of the first court rulings that decided that virtual currencies <a href="https://www.cftc.gov/PressRoom/PressReleases/7820-18" target="_blank" rel="noreferrer noopener">meet the definition of a commodity</a>. Virtual currency frauds have been subject to regulation by several agencies. 



The CFTC had sued the company, CEO John Roche, Crater and three others on accusations that they participated in a fraudulent scheme. 



Crater was arrested in Florida in February 2019 on charges he took part in a $6 million scheme to defraud people who wanted to buy My Big Coin, <a href="https://www.reuters.com/article/us-crypto-currency-mybigcoin-idUSKCN1QG2HY" target="_blank" rel="noreferrer noopener">Reuters</a> reported.&nbsp;



Scott Lopez from Lawson &amp; Weitzen, Crater’s lawyer, did not return Blockworks’ request for comment by press time.



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DOJ Charges Virtual Asset Firm Founder With $6M Investor Fraud

<div id="highlights-block_62aa762598486" class="highlights">
 <ul>
 <li>Delo, along with Hayes, agreed to settle with the DOJ and CFTC and agreed to pay a $10 million fine in February</li>
 <li>The co-founder has now resolved all regulatory cases relating to BitMEX, according to the law firm representing Delo</li>
 </ul>
 
</div>



BitMEX co-founder Benjamin Delo has received 30 months on probation without home confinement following charges over his role in violating the US Bank Secrecy Act (BSA).



Delo, along with BitMEX founder Arthur Hayes, <a href="https://cms.blockworks.co/bitmex-founders-hayes-delo-plead-guilty-to-violating-us-bank-secrecy-act/" target="_blank" rel="noreferrer noopener">pleaded guilty</a> to charges earlier this year by the Department of Justice (DOJ) which accused the pair of “willfully failing” to implement anti-money laundering measures at the exchange.



The case against the founders initially began two years ago when the DOJ accused Delo, Hayes and BitMEX’s first official employee Greg Dwyer of operating a &#8220;money-laundering platform&#8221; from September 2015 through to September 2020.



The exchange’s failure to implement AML and Know-Your-Customer programs were central to the department&#8217;s argument in the case for their violations of the BSA.



BSA violations carry a maximum sentence of five years, had the case gone to trial, but the pair were able to reach a plea agreement where the DOJ pushed for a 6-12 month prison sentence.



In a parallel civil case filed in February with the Commodity and Futures Trading Commission, both Hayes and Delo agreed to pay a $10 million fine, which also formed part of the agreement with the DOJ. For his involvement, Hayes previously received a six months sentence of home detention and two years of probation.



In a statement, a spokesperson for the New York-based law firm Smith Villazor LLP — representing Delo — said they were pleased the court rejected the government’s &#8220;cynical attempt to exaggerate the seriousness&#8221; of the BSA charge.



&#8220;Today’s sentence of probation recognized that this case involved a compliance lapse that led to a regulatory violation and nothing more,&#8221; the spokesperson said. &#8220;The government’s campaign — both in the courtroom and in the press — to malign Ben with highly inflammatory and misleading language concerning Ben’s conduct gained no traction with the court.&#8221;



Together with the recent settlement with the CFTC, Delo has now resolved all regulatory cases relating to BitMEX, the spokesperson said.



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BitMEX Co-Founder Delo Gets 30 Months Probation, Avoids Jail Time

Jacquelyn Melinek

<div id="highlights-block_6202a9e31b921" class="highlights">
 <ul>
 <li>Both crimes carry a total maximum sentence of 25 years in prison</li>
 <li>It’s the department’s largest financial seizure ever, Deputy Attorney General Lisa Monaco said in a statement</li>
 </ul>
 
</div>



The US government has recovered the majority of the cryptocurrency stolen during the 2016 Bitfinex hack and arrested a married couple allegedly linked to it.



In 2016, hackers stole 119,755 bitcoin, worth approximately $5.3 billion at the current price, from the cryptocurrency exchange. The <a href="https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency" target="_blank" rel="noreferrer noopener">Department of Justice said</a> Tuesday that law enforcement had recouped more than $3.6 billion so far. 



This is the department’s largest financial seizure ever, Deputy Attorney General Lisa Monaco said in a statement. “[Today’s arrests] show that cryptocurrency is not a safe haven for criminals,” Monaco said.



New York residents Ilya Lichtenstein, 34, and Heather Morgan, 31, were arrested for conspiracy to launder cryptocurrency and money that was stolen during the hack six years ago. They were also charged with conspiracy to defraud the US.



Both crimes can carry a total maximum sentence of 25 years in prison. They are scheduled to make their first appearances in a Manhattan federal court Tuesday afternoon.



<blockquote class="wp-block-quote">“In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions,” Monaco said. “Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”</blockquote>



Lichtenstein and Morgan allegedly conspired to launder 119,754 bitcoins that were stolen from the platform after a hacker breached the systems and made over 2,000 unauthorized transactions.&nbsp;



“Those unauthorized transactions sent the stolen bitcoin to a digital wallet under Lichtenstein’s control,” according to court documents. “Over the last five years, approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan.”



The remainder of the stolen funds, about 94,000 bitcoins, remain in the wallet used in the hack.



At the time of the theft, bitcoin was trading at $612, valuing the heist at $73.39 million — less than one 70th of its current worth.



Bitfinex <a href="http://12:37https://support.bitfinex.com/hc/en-us/articles/4417401349657-2016-Security-Breach-Bitcoin-Recovery-Frequently-Asked-Questions-FAQ-" target="_blank" rel="noreferrer noopener">said</a> it hoped to work with the U.S. Department of Justice to retrieve the stolen bitcoin. &#8220;We will provide further updates on our efforts to obtain a return of the stolen bitcoin as and when those updates are available,&#8221; the company said.



Prior to this, global law enforcement and other private sectors helped Bitfinex recover about 27.66 and 6.5 bitcoin in February 2019 and December 2021, respectively.



The complaint alleges the couple used a handful of laundering techniques, including using fictitious identities to set up online accounts and utilizing computer programs to automate transactions.



“Financial crime strikes at the core of our national and economic security,” Acting Executive Associate Director Steve Francis of Homeland Security Investigations said in a statement. “With a hack of this magnitude, public and private sector collaboration is crucial to ensure continued consumer confidence in our financial system.”



Crypto platforms in general have been struck by a number of exploits, including several that took place this year.&nbsp;



Earlier this month, hackers stole <a href="https://cms.blockworks.co/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether/" target="_blank" rel="noreferrer noopener">120 ether, or $320 million</a>, from the Wormhole protocol in the <a href="https://defiyield.app/rekt-database" target="_blank" rel="noreferrer noopener">second-largest</a> DeFi hack to date.&nbsp;



At the end of January, DeFi (decentralized finance) protocol Qubit Finance lost millions of dollars to a hack after 206,809 Binance Coin, roughly <a href="https://cms.blockworks.co/defi-protocol-qubit-finance-loses-80m-in-hack/" target="_blank" rel="noreferrer noopener">$80 million</a>, were stolen.



The DOJ was not available for comment on Tuesday.



This story was updated on Feb. 9, 2022, at 12:50pm ET, with additional details on the stolen funds and Bitfinex&#8217;s efforts to recover them.



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