The Seoul Southern District Court has ruled that Luna, the cryptocurrency of Terraform Labs, is not a security, effectively rejecting the prosecutor’s claims that co-founder Shin Hyun-sung violated the Capital Market Act. The decision marks the first time that a court has categorically stated that Luna is not a security.
The court also dismissed the prosecution’s requests for forfeiture and unit preservation claims against Shin, stating that it was “difficult to conclude that the property being claimed is property acquired by crime or derived from it.” While the prosecutor had argued that Luna’s fraudulent transactions violated independent legal interests, the Court of Second Instance found that the materials submitted by the prosecution did not support the claim that Luna was a financial investment product regulated by the Capital Market Act. Consequently, the court’s rulings suggest that Shin and others will likely face charges of fraud and breach of trust, rather than violations of the Capital Market Act.
Analysis of SEC Complaint
Some observers believe that the US Securities and Exchange Commission’s (SEC) complaint against Terraform Labs’ CEO for fraud in the US District Court for the District of New York in February could affect domestic trials. However, cryptocurrency expert Attorney Lin of Taeon Koo said that the SEC’s complaint was not a judgment of the US judiciary, and that the US Commodity Futures Trading Commission still considers cryptocurrencies to be commodities. Lin added that in order for buying cryptocurrency to be an investment contract, there must be a right to distribute property when liquidating, but the cryptocurrency white paper does not mention this right.
The argument that cryptocurrencies are securities has been raised several times in domestic legal disputes, but it has not been an issue in most trials. The decision of the Southern District Court could influence future cases that examine whether cryptocurrencies are securities or not. However, the Supreme Court’s decision on securities has not yet been made.