South Korean Court Clears Former Terraform Labs CEO of Security Violations

Rebeca Moen   Apr 25, 2023 07:57

A South Korean district court has cleared former Terraform Labs CEO and co-founder Hyun-seong Shin of security violations in a ruling that is expected to affect how the country's regulators treat cryptocurrencies. The court ruled that LUNA (LUNA), the native token of the LUNA ecosystem, is not a security under Korea's Capital Markets Act.

The prosecution had accused Shin of fraudulent transactions that breached the Capital Markets Act and committed crimes involving property, making property confiscation a possibility. However, the southern district court in Seoul dismissed the appeal, stating that it is difficult to see Luna Coin as a financial investment product regulated by the Capital Markets Act.

The court's decision is significant because it categorically states that Luna is not a security. Previous court rulings had used more cautious language, such as "there is room for dispute in terms of the law" and "it is questionable whether the Capital Market Act can be applied." The latest ruling clarifies the regulatory status of LUNA and other native tokens in South Korea.

While rejecting the prosecution's request for confiscation of Shin's properties, the court noted that it is difficult to see that the property subject to the claim had been "acquired by a crime or an asset derived from it." The ruling makes the Terra-LUNA saga a case of fraud and breach of trust rather than a violation of the Capital Markets Act.

Shin's lawyer hailed the court's decision, stating that Luna could not easily be considered an investment product based on the ruling. The court also rejected the prosecution's requests for an arrest warrant for Shin and individuals associated with the case.

However, the prosecution is still focusing on the securities aspect of the native token and has appealed to the Supreme Court against the verdict of the lower district court. The case highlights the need for clear regulatory guidelines for cryptocurrencies in South Korea and other countries.

The judgment by the Korean district court is in contrast to the stance of the United States Securities and Exchange Commission (SEC), which has charged Terraform Labs and its founder, Do Kwon, with violation of securities law. Kwon's lawyers have denied the SEC's securities fraud allegations.

The Terra-LUNA case is closely watched by the cryptocurrency community as it raises important questions about the regulatory status of native tokens and the scope of securities laws. The South Korean court's ruling is likely to have a significant impact on the future of cryptocurrencies in the country and beyond. As the regulatory landscape evolves, it is essential for companies and investors to stay informed and compliant with the latest laws and guidelines.

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