Suspected Crypto Fugitive Arrested in Montenegro

Mr. Adzic and representatives of Mr. Kwon’s company, Terraform Labs Pte. Ltd., didn’t immediately respond to requests for comment. An official from the National Police Agency in South Korea—where Mr. Kwon is from—said the agency believed the detained person was Mr. Kwon but was waiting on fingerprint information to confirm, the country’s semiofficial Yonhap News Agency reported. 

TerraUSD, a so-called algorithmic stablecoin that sought to maintain a price of $1, lost its dollar peg in May of last year, setting off a chain reaction that wiped out some $40 billion in value from the digital-currency markets. The crash hurt thousands of investors worldwide, including some who lost their life savings.

Authorities in the U.S. and beyond have stepped up the pressure on the crypto industry after a series of recent blowups that hurt investors in the digital currency markets. Federal prosecutors in New York have charged

Sam Bankman-Fried,

the founder of the failed FTX crypto exchange, with fraud in connection with FTX’s implosion. Mr. Bankman-Fried has pleaded not guilty and the case is set to go to trial in October. International law-enforcement agencies have also repeatedly busted operations connected to crypto crime.

If detained man is confirmed to be Mr. Kwon, the arrest would mark the end of a monthslong manhunt that spanned Asia and Europe. During that time, the once-outspoken booster of TerraUSD occasionally surfaced on social media to promote a new cryptocurrency project and to defend himself against accusations of fraud. 

Just one year ago, Mr. Kwon was a high-profile crypto entrepreneur backed by some of the industry’s biggest investors and trading firms. The Stanford University graduate spoke at digital-currency conferences and had numerous fans dubbed “Lunatics,” after TerraUSD’s sister cryptocurrency, Luna. 

Before the collapse, he often boasted online about TerraUSD’s stability and derided critics who questioned the underlying financial mechanism that kept it pegged to the dollar. Investors both large and small flocked to TerraUSD because of a project called Anchor Protocol that allowed them to earn up to 20% annual yields by parking it in the stablecoin.

The collapse of TerraUSD shredded his reputation and triggered a number of investigations and lawsuits around the world.

South Korean authorities issued a warrant for Mr. Kwon’s arrest in September and obtained a so-called red notice for him from global policing body Interpol, effectively putting law-enforcement agencies worldwide on the lookout for him. The Wall Street Journal reported last week that the U.S. Justice Department was investigating the collapse of TerraUSD and had questioned former Terraform Labs team members.

The Securities and Exchange Commission sued Mr. Kwon and the company for alleged securities fraud last month in connection with the TerraUSD collapse. A lawyer for Mr. Kwon and Terraform has said in court that they would seek to dismiss the SEC’s lawsuit. Mr. Kwon has previously denied committing fraud. In an interview with The Wall Street Journal last year, he said that he believed in TerraUSD and personally lost money when it collapsed. “There is a difference between failing and running a fraud,” he said then.

Police in Singapore have also said they are investigating Terraform Labs, where the company is based. Mr. Kwon was living in Singapore until he disappeared from public view half a year ago. According to South Korean prosecutors, he left Singapore in September, traveling to Dubai and then to Serbia. Montenegro neighbors Serbia.

Mr. Kwon has denied being on the run but declined to disclose his whereabouts, saying he was worried about his security amid threats from disgruntled investors. Officials from South Korean law enforcement visited Serbia earlier this year to seek the Balkan country’s cooperation.

The SEC’s lawsuit accused Mr. Kwon and his company of misleading investors about the risks of TerraUSD and wrongly claiming that Terraform Labs’ blockchain technology was used to process transactions on Chai, a South Korean payment app, when in fact Chai used more traditional payment technology. The SEC also said Mr. Kwon and Terraform Labs had transferred a huge amount of bitcoin to an unnamed Swiss bank and converted it to cash. Over $100 million in fiat currency was withdrawn from that Swiss bank since June 2022, the SEC said.

Mr. Kwon has yet to respond to the SEC’s lawsuit in detail. In a Feb. 1 tweet, before the SEC lawsuit, he wrote: “I’ve stolen no money and never had ‘secret cashouts.’”

Financial regulators, which have the power to impose monetary penalties, have sought to curb the activities of crypto companies, with the U.S. moving more aggressively than many other countries. On Wednesday, the biggest U.S. crypto exchange,

Coinbase Global Inc.,

said it had received a notice from the SEC that the agency is planning to bring an enforcement action against it. Coinbase expressed disappointment that it failed to reach an agreement with the SEC over legally registering its business.

Also on Wednesday, the SEC agreed to a settlement with actress Lindsay Lohan and boxer Jake Paul over accusations that they had promoted cryptocurrencies without disclosing that they were paid to do so. Ms. Lohan and Mr. Paul didn’t admit or deny wrongdoing. 

Write to Alexander Osipovich at alexo@wsj.com and Bojan Pancevski at bojan.pancevski@wsj.com