The trial of payment platform developer Terraform Labs, co-founder Shin Hyun-Seong, also known as Daniel Shin, and seven others began in South Korea’s Seoul District Court on October 30, according to local news reports. Sheen is accused of defrauding investors. Also at issue was whether or not Luna served as collateral.
Sheen left Terraform in 2020 for “business reasons,” his lawyer told the court. Chen was the CEO of Chai, a payments technology company that partnered with Kwon to found Terraform in 2019. According to Chosun Biz, the lawyer added:
“The recession (which led to Terraform’s bankruptcy) was due to the unreasonable operation of the Anchor Protocol and external attacks carried out by Do-hyung Kwon after the breakup (between business partners Shin and Kwon). (…) The matter has nothing to do with the accused.”
The Anchor Protocol was the algorithm used to keep the value of the Terra coin tied to the dollar.
The defendants face multiple charges under at least four laws, including the Information Law. The prosecutor alleged that they “exploited the fact that investors had difficulty accessing the information and had low understanding of it.”
The prosecutor also said: “A company cannot be established that uses virtual assets as a means of payment,” but the defense lawyer disputed this statement, saying that there were no regulations on the use of virtual assets for payment when Terraform was founded.
Prosecutors cited the US Securities and Exchange Commission (SEC) case against Ripple as the basis for several charges related to violations of South Korea’s capital markets law, comparing the sale of XRP to investors to Terraform’s actions in South Korea.
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The defense responded that US law does not apply in South Korea, and “the government has announced several times since 2017 that virtual assets do not fall under the category of financial products (securities),” adding that the Capital Markets Law cannot be applied. Retroactive effect in all cases.
The Securities and Exchange Commission sued Terraform and Kwon for fraud in February.
Korean prosecutors have summoned Daniel Chen, co-founder of Terra, to attend an investigation into insider trading, price manipulation and breach of their duties to Chai’s clients. Prosecutors allege that Shen illegally cashed out more than $100 million from LUNA in violation of local securities laws. pic.twitter.com/H6Ysf7se0b
– Fat Man (@FatManTerra) November 14, 2022
In November 2022, South Korean authorities confiscated 140 billion won, worth about $105 million at the time, from Shin. They claimed that Shin sold Luna coins worth this amount, knowing that their value would decrease. Defense lawyers denied this charge as well.
Unlike Terraforms co-founder Do Kwon, Shin remained in South Korea after Terraform Labs collapsed in May 2022. He first appeared in court in November 2022 and was charged with fraud in April. South Korea has issued an arrest warrant for Kwon, but he is currently in Montenegro.
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