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Newsletter: Terra founder Do Kwon is finally extradited, the CFPB proposes crypto consumer protections, and Polymarket reaches new lows.
After 21 months in extradition limbo, founder of the collapsed Terra stablecoin Do Kwon has been extradited to the United States to face serious fraud charges over his operation of the scheme. Don't hold your breath, though: the trial won't begin for another year.
![Do Kwon
After almost two years in extradition limbo, Terra founder Do Kwon has been extradited to the United States. To recap: in May 2022, Kwon’s Terra stablecoin and associated Luna crypto token crashed catastrophically, ruining many who had been tempted by supposedly risk-free 19–20% APY they were promised in exchange for depositing their dollar-pegged Terra stablecoins (UST) into a protocol called Anchor. Side note: If someone promises you a risk-free 20% annual yield if you just let them hold on to your dollars for you (or turn your dollars into stablecoins and then let them hold on to your stablecoins for you), the risk that that you never see those dollars again is in fact very high.
Despite tweeting “I am not ‘on the run’ or anything similar” [I4], Kwon was in the wind by the time South Korea (Kwon’s home country, also home to many Terra victims) issued a warrant for his arrest in September 2022 [W3IGG]. The United States SEC followed up with civil fraud charges in February 2023 [W3IGG]. In March 2023, Kwon was nabbed in a Montenegrin airport [I23], where he was using a forged passport to try to travel to Dubai.a That same day, US prosecutors unsealed a criminal indictment against him. Kwon spent the next 21 months in a Montenegrin jail, during which a string of more than twenty court rulings and appeals saw him approved for extradition first to the US, then to South Korea, then the US again in a process that Protos wrote was “single-handedly ripping Montenegro apa](https://media.hachyderm.io/media_attachments/files/113/806/065/738/830/571/original/3f5fab08753d4e5c.png "Do Kwon
After almost two years in extradition limbo, Terra founder Do Kwon has been extradited to the United States. To recap: in May 2022, Kwon’s Terra stablecoin and associated Luna crypto token crashed catastrophically, ruining many who had been tempted by supposedly risk-free 19–20% APY they were promised in exchange for depositing their dollar-pegged Terra stablecoins (UST) into a protocol called Anchor. Side note: If someone promises you a risk-free 20% annual yield if you just let them hold on to your dollars for you (or turn your dollars into stablecoins and then let them hold on to your stablecoins for you), the risk that that you never see those dollars again is in fact very high.
Despite tweeting “I am not ‘on the run’ or anything similar” [I4], Kwon was in the wind by the time South Korea (Kwon’s home country, also home to many Terra victims) issued a warrant for his arrest in September 2022 [W3IGG]. The United States SEC followed up with civil fraud charges in February 2023 [W3IGG]. In March 2023, Kwon was nabbed in a Montenegrin airport [I23], where he was using a forged passport to try to travel to Dubai.a That same day, US prosecutors unsealed a criminal indictment against him. Kwon spent the next 21 months in a Montenegrin jail, during which a string of more than twenty court rulings and appeals saw him approved for extradition first to the US, then to South Korea, then the US again in a process that Protos wrote was “single-handedly ripping Montenegro apa")
![Montenegro has recently been able to reach its first “final verdict” that was actually final enough to see Kwon actually board a plane, and he arrived in the United States to appear in court on January 2. This was celebrated by Prime Minister Milojko Spajić, who tweeted that he believed the extradition would “put an end to pre-election manipulations and attempts to stage a scandal”.2 Kwon is probably not as happy about the outcome as Spajić. Although he fought both extradition to the United States and South Korea, he seemed particularly opposed to the idea of winding up in the United States, with his lawyers at one point arguing that Montenegrin courts had falsified information so as to suggest that the United States requested Kwon's extradition before South Korea, and stating that the facts “absolutely and one hundred percent give priority to Korea.”3 [I56] He’d tried again to halt this extradition, too, by again claiming that Minister of Justice Bojan Božović had illegally granted it, but to no avail.4
The eight fraud, market manipulation, and money laundering charges carry hefty maximum sentences,56 and Kwon stands accused of causing $40 billion in losses to at least hundreds of thousands, if not more than a million people.7 He’s entered a not guilty plea, as is to be expected this early on, and is likely to do a whole lot more sitting around in a jail cell as prosecutors and defense attorneys sift through discovery. “Sounds like we’re going to be backing up a U-Haul to](https://media.hachyderm.io/media_attachments/files/113/806/065/745/465/798/original/74633f9559c6c4ce.png "Montenegro has recently been able to reach its first “final verdict” that was actually final enough to see Kwon actually board a plane, and he arrived in the United States to appear in court on January 2. This was celebrated by Prime Minister Milojko Spajić, who tweeted that he believed the extradition would “put an end to pre-election manipulations and attempts to stage a scandal”.2 Kwon is probably not as happy about the outcome as Spajić. Although he fought both extradition to the United States and South Korea, he seemed particularly opposed to the idea of winding up in the United States, with his lawyers at one point arguing that Montenegrin courts had falsified information so as to suggest that the United States requested Kwon's extradition before South Korea, and stating that the facts “absolutely and one hundred percent give priority to Korea.”3 [I56] He’d tried again to halt this extradition, too, by again claiming that Minister of Justice Bojan Božović had illegally granted it, but to no avail.4
The eight fraud, market manipulation, and money laundering charges carry hefty maximum sentences,56 and Kwon stands accused of causing $40 billion in losses to at least hundreds of thousands, if not more than a million people.7 He’s entered a not guilty plea, as is to be expected this early on, and is likely to do a whole lot more sitting around in a jail cell as prosecutors and defense attorneys sift through discovery. “Sounds like we’re going to be backing up a U-Haul to")
Gemini, the cryptocurrency exchange owned by the Winklevoss twins, has just paid $5 million to settle a lawsuit from the CFTC. (Not to be confused with their OTHER lawsuit from the SEC.)
![The Winklevoss twins’ Gemini cryptocurrency exchange will pay $5 million to settle a lawsuit from the CFTC, which alleged that the company had misled the regulator about how they would prevent Bitcoin price manipulation in the Bitcoin futures contract for which they were seeking approval.9 The case at one time threatened to turn criminal, as prosecutors in late 2017 or early 2018 seized laptops belonging to former executives, but criminal charges were never filed.10 The CFTC case is separate from the lawsuits against Gemini pertaining to its “Earn” product, which the SEC alleges was an unregistered securities offering, and which raised billions from investors before pausing withdrawals in November 2022 amid the broader crypto market upheavals and Genesis’ insolvency. One of those lawsuits, filed by the New York Attorney General, resulted in an agreement by Gemini to return at least $1.1 billion to customers [I60]. Another, from the SEC, is ongoing [I17].](https://media.hachyderm.io/media_attachments/files/113/806/076/263/131/634/original/5ddac0cd04b689f5.png "The Winklevoss twins’ Gemini cryptocurrency exchange will pay $5 million to settle a lawsuit from the CFTC, which alleged that the company had misled the regulator about how they would prevent Bitcoin price manipulation in the Bitcoin futures contract for which they were seeking approval.9 The case at one time threatened to turn criminal, as prosecutors in late 2017 or early 2018 seized laptops belonging to former executives, but criminal charges were never filed.10 The CFTC case is separate from the lawsuits against Gemini pertaining to its “Earn” product, which the SEC alleges was an unregistered securities offering, and which raised billions from investors before pausing withdrawals in November 2022 amid the broader crypto market upheavals and Genesis’ insolvency. One of those lawsuits, filed by the New York Attorney General, resulted in an agreement by Gemini to return at least $1.1 billion to customers [I60]. Another, from the SEC, is ongoing [I17].")
Coinbase is being allowed interlocutory appeal in their lawsuit from the SEC, which could establish meaningful precedent if the Second Circuit agrees to hear it.
![Coinbase is being allowed to appeal to the Second Circuit the March 2024 order by New York Judge Katherine Polk Failla that the SEC has plausibly argued that some transactions met the definition of investment contracts, and thus fell under their purview [I54]. Known as an “interlocutory appeal”, this request to appeal was made while the case still remains in its early stages, and such requests are somewhat rarely granted. However, Failla wrote, “Although the Court does not appreciate, and will not co-sign, Coinbase’s efforts to cast aspersions on the SEC’s approach to crypto-assets, the fact remains that these conflicting decisions on an important legal issue necessitate the Second Circuit’s guidance.” She also noted opinions in other cases in the district involving Terraform Labs and Ripple, where judges may have issued conflicting rulings. She continued, “The Court agrees with Coinbase that ‘[t]he conflict between Ripple on the one hand and Terraform and the [March 2024 Coinbase] Order on the other is symptomatic of the more fundamental difficulty of applying Howey to crypto transactions.’” Failla has stayed the rest of the case pending either a decision from the Second Circuit to deny the request for appeal, or a decision on the appeal itself.14 If the Second Circuit takes the case, it could be very meaningful for the crypto world, which has been battling the SEC over the “securities” determination for years now. However, the industry has put significant efforts towards](https://media.hachyderm.io/media_attachments/files/113/806/086/399/635/227/original/8c19cba2e7ee50e0.png "Coinbase is being allowed to appeal to the Second Circuit the March 2024 order by New York Judge Katherine Polk Failla that the SEC has plausibly argued that some transactions met the definition of investment contracts, and thus fell under their purview [I54]. Known as an “interlocutory appeal”, this request to appeal was made while the case still remains in its early stages, and such requests are somewhat rarely granted. However, Failla wrote, “Although the Court does not appreciate, and will not co-sign, Coinbase’s efforts to cast aspersions on the SEC’s approach to crypto-assets, the fact remains that these conflicting decisions on an important legal issue necessitate the Second Circuit’s guidance.” She also noted opinions in other cases in the district involving Terraform Labs and Ripple, where judges may have issued conflicting rulings. She continued, “The Court agrees with Coinbase that ‘[t]he conflict between Ripple on the one hand and Terraform and the [March 2024 Coinbase] Order on the other is symptomatic of the more fundamental difficulty of applying Howey to crypto transactions.’” Failla has stayed the rest of the case pending either a decision from the Second Circuit to deny the request for appeal, or a decision on the appeal itself.14 If the Second Circuit takes the case, it could be very meaningful for the crypto world, which has been battling the SEC over the “securities” determination for years now. However, the industry has put significant efforts towards")
The CFPB is seeking comment on a proposed interpretive rule that would clarify that cryptocurrencies and some in-game video game currencies fall under the EFTA, which could require crypto and video game companies to reimburse scam victims.
Having failed to obtain proof of "Operation Chokepoint 2.0" with their FOIA requests, Coinbase is going with the second best option: loudly proclaiming that they have such proof, and hoping no one will bother to dig through the rather dry emails between banks and banking regulators. Fortunately, I have several years of practice in digging through dry documents crypto industry figures hope no one will actually read.
![The crypto industry has continued to doggedly pursue proof of their enormously dubious claims that the FDIC and other financial regulators have been engaging in “Operation Chokepoint 2.0” [I71]. Coinbase has been busy filing Freedom of Information Act requests, hoping to secure documents that would prove that the FDIC was involved in such a nefarious campaign to “de-bank” the crypto industry by ordering banks to deny accounts or other services to anyone involved with the sector. Having failed to obtain such proof, Coinbase is going with the second best option: loudly proclaiming that they have such proof, and hoping no one will bother to dig through the rather dry emails between banks and banking regulators. Fortunately, I have several years of practice in digging through dry documents crypto industry figures hope no one will actually read.
“In short, the contents are a shameful example of a government agency trying to cut off financial access to law-abiding American companies,” wrote Coinbase Chief Legal Officer Paul Grewal on Twitter.21 In long, the documents actually reflect mostly requests for more information about blockchain-related services provided or used by banks themselves, where the FDIC was seeking to do things like “gain an understanding of how the bank will ensure continued safe and sound operation as this activity is implemented”. Where the FDIC did request banks pause activities, it was again where those banks wer](https://media.hachyderm.io/media_attachments/files/113/806/102/025/874/072/original/a971b53914d2bb7b.png "The crypto industry has continued to doggedly pursue proof of their enormously dubious claims that the FDIC and other financial regulators have been engaging in “Operation Chokepoint 2.0” [I71]. Coinbase has been busy filing Freedom of Information Act requests, hoping to secure documents that would prove that the FDIC was involved in such a nefarious campaign to “de-bank” the crypto industry by ordering banks to deny accounts or other services to anyone involved with the sector. Having failed to obtain such proof, Coinbase is going with the second best option: loudly proclaiming that they have such proof, and hoping no one will bother to dig through the rather dry emails between banks and banking regulators. Fortunately, I have several years of practice in digging through dry documents crypto industry figures hope no one will actually read.
“In short, the contents are a shameful example of a government agency trying to cut off financial access to law-abiding American companies,” wrote Coinbase Chief Legal Officer Paul Grewal on Twitter.21 In long, the documents actually reflect mostly requests for more information about blockchain-related services provided or used by banks themselves, where the FDIC was seeking to do things like “gain an understanding of how the bank will ensure continued safe and sound operation as this activity is implemented”. Where the FDIC did request banks pause activities, it was again where those banks wer")
That and more in today's issue of Citation Needed. If you enjoyed it, please consider signing up for a free or pay-what-you-want subscription — it helps me to keep doing this work. Citation Needed is an independent publication, entirely supported by readers like you.
@molly0xfff I hope he enjoys being kept in a small room for a while.
@molly0xfff I just want to shout out how important @molly0xfff's work is going to be in the USA's new News Desert of Capitulation. Since @KingMusk and #Trusk are tripling down on #crypto (and #AI) - and the media won't cover it well or at all, News sources like this are going to be key.
Develop your new USA news diet now, folks.
#CBC #ABC (AusBC), #SABC (South African) for national, english language. Lots of specialists for other stuff
@molly0xfff I need a sample
Dry reader, spicy writer.
@molly0xfff hm, I just heard from a friend a couple weeks ago who had a bank acct closed because he was trading crypto. How hard could it be to find a paper trail for that?
@hyc @molly0xfff Could be hard! Banks are *not* required to tell you why they closed your account.
@hyc Pretty hard. Banks don’t normally disclose specifics around why they close accounts. However, your friend’s experience is fairly common for a reason I mention in this piece
Yet, as you know, every cryptocurrency is a pure ponzi scheme. That regulation is bad, because it implies that cryptocurrencies are legitimate enterprises -- which may be used in scams, but are not scams themselves...
@JorgeStolfi ehh, i'm not sure the CFPB regulation implies BTC is any more legitimate than, say, Robux
@molly0xfff FYI, just noticed gmail is considering your emails to be spam...
