South Korean court to rule on LUNC’s security status; Terraform’s Shin to stand trial.
The trial of Terraform Labs Co-founder Daniel Shin is set to begin in South Korea. Prosecutors are determined to prove that Terra Classic (LUNC) is a security.
Shin, whose Korean name is Shin Hyun-seong, will face fraud charges on June 10. Legal experts are expecting a “fierce” battle in court, according to Chosun Ilbo and EToday.
Currently, South Korean law does not classify any cryptocurrency as a “security.” However, the prosecution’s case rests on proving that Shin knew LUNC (formerly LUNA) was a “security” when he sold tokens to investors.
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Shin has repeatedly said he stepped away from the Terraform project two years after founding the company in Singapore. But video interviews with Shin just weeks before the crash appear to hint at an ongoing relationship between the Terra ecosystem and his own payments firm, Chai Corporation.
Even if prosecutors succeed in convincing a district court that LUNC is a security, Shin’s legal team has the right to pursue the matter at a second trial in the high court. If this fails, the matter can be taken to the Supreme Court. Prosecution officials can also appeal verdicts, meaning the legal battle could drag on for months. But prosecutors are hopeful of victory. Should they succeed, they will hope to prosecute Shin’s Terraform Co-founder Do Kwon on similar charges.
Kwon is currently awaiting trial for allegedly traveling on forged documents in Montenegro. He was arrested along with Han Chang Joon, a senior executive at both Chai and Terraform. The duo was allegedly attempting to board a private plane at Podgorica Airport.
Kwon has stated that LUNC is “not a security” and has complained that the case against him has become “politicized.” Prosecution officials have been attempting to secure his deportation to South Korea.
Legal Challenges for Prosecutors – Will Shin Be Convicted?
Prosecutors have been fighting an uphill battle in their efforts to bring Shin to trial. Initial efforts to convince courts to issue him with an arrest warrant were rejected in December last year. Do Kwon (then in hiding) celebrated this ruling with apparent glee on Twitter. But prosecutors returned with more attempts, after gathering evidence from Chai and raiding Shin’s home.
The issues did not stop there, however. The first trial date was initially set for May 26. But it was later revealed that the judge at the court was a former reporter for a newspaper who had interviewed Shin during the course of his work. The trial date was postponed, and the court was changed accordingly.
How Will Prosecution Try to Prove LUNC Is a Security – And What Is at Stake?
The media outlets reported that both Shin and the prosecution have “requested that experts submit written opinions on whether or not [LUNC] can be considered a security.” An unnamed “capital markets” expert who submitted their opinion to the prosecution was quoted as stating:
“It is reasonable to view both [LUNC] and [the USD-pegged stablecoin UST] as securities. But the prosecution is only trying to prove that this is the case with [LUNC] to increase the possibility of securing a positive outcome.”
Prosecutors think that they can prove Shin is guilty only on charges of fraud, breach of trust, and embezzlement. But the bone of contention is whether or not Shin violated the Capital Markets Act. This would require them to prove LUNC is indeed a security, as the Capital Markets Act does not currently contain many crypto-specific clauses. Chosun explained:
“It is only possible to apply the Capital Markets Act when it can be proved that coins [represent] securities investment contracts.”
Prosecutors are optimistic that the case brought by the US Securities and Exchanges Commission (SEC) against Terraform will influence the court’s decision.
The SEC has referred to LUNC and Terra coins as “cryptoasset securities.”
The SEC is also involved in a lengthy legal dispute over whether XRP is a security or not.
However, Shin’s team is hopeful that the court will take into account a ruling from the Seoul Southern District Court in April of this year, in which a judge stated that LUNC could not be considered a security.