The South Korean district court ruled LUNA is not a security, impacting the Terra-LUNA saga and future related cases.
In a recent ruling, a South Korean district court declared that LUNA, the native token associated with the LUNA ecosystem, does not qualify as a security under the country’s Capital Markets Act. This pivotal decision emerged during the legal proceedings involving former Terraform Labs CEO and co-founder, Hyun-seong Shin. The southern district court in Seoul opted to dismiss the security violation charges against Shin, as well as deny the prosecution’s appeal for confiscating his assets and pursuing his arrest based on alleged securities law infringements.
Lawyers representing Terra cofounder Do Kwon have filed a motion in court to dismiss the SEC's lawsuit against their client.
They claim fraud is unfounded because $LUNA is a currency, not a security.
— Whale (@WhaleChart) April 23, 2023
The prosecution maintained that the fraudulent transactions involving LUNA not only violated the Capital Market Act but also constituted property-related crimes (fraud), potentially justifying property confiscation. However, the court struggled to categorize LUNA as a financial investment product subject to regulation by the Capital Markets Act. As a result, the court declined the prosecution’s request to seize the defendant’s assets, citing the challenge of determining whether the property in question had been “procured through criminal activity or derived from it.”
Court Ruling: LUNA Not a Security
The latest ruling holds considerable weight, as it unambiguously asserts that LUNA is not a security. This contrasts with the more cautious language employed by previous courts, such as “there is room for dispute concerning the law” and “the applicability of the Capital Market Act is debatable.” The attorney representing the ex-CEO of Terraform Labs revealed that the court dismissed the prosecution’s requests for an arrest warrant targeting his client and others connected to the case. He further highlighted that, in light of the court ruling, it is challenging to classify LUNA as an investment product.
With this court ruling, the ongoing Terra-LUNA saga has shifted its focus from Capital Markets Act violations to issues surrounding fraud and breach of trust. Nevertheless, the prosecution persists in scrutinizing the securities aspect of the native token and has even filed an appeal with the Supreme Court, contesting the lower district court’s decision.
The South Korean district court’s judgment starkly contrasts with the position taken by the United States Securities and Exchange Commission (SEC). The SEC has accused Terraform Labs and its founder, Do Kwon, of violating securities laws. Kwon’s legal representatives, however, have dismissed the SEC’s securities fraud allegations.
In summary, the South Korean district court’s determination that LUNA is not a security under the Capital Markets Act carries significant implications for the Terra-LUNA saga. While the prosecution remains focused on the securities angle of the native token, this ruling could potentially alter the trajectory of the case and influence similar cases in the future. As the legal battle unfolds, it will be crucial to monitor how the court’s decision shapes the narrative surrounding LUNA and the broader Terra ecosystem.