The trial of Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin, and seven others, commenced in Seoul Southern District Court, South Korea, on October 30, as reported by local news outlets. The primary allegation against Shin is defrauding investors, with an additional point of contention revolving around whether LUNA (LUNAUSD) should be classified as a security.
Shin’s departure from Terraform in 2020, attributed to “business reasons” by his lawyer, was presented to the court. Shin previously held the position of CEO at Chai, a payments technology company that collaborated with Kwon to establish Terraform in 2019. As reported by Chosun Biz, his lawyer stated,
“The cause of the slump that 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. It has nothing to do with the defendant.”
The Anchor Protocol served as the algorithm responsible for maintaining the value of the dollar-pegged TerraUSD (UST) coin.
The defendants are facing multiple charges under various laws, including the Information Act. The prosecutor contended that they took advantage of investors’ limited access to information and their limited understanding of the situation.
The prosecutor also argued that “a business using virtual assets as a payment method cannot be established.” However, the defense lawyer challenged this statement, asserting that there were no regulations governing the use of virtual assets for payments at the time Terraform was founded.
The prosecution drew parallels between the case and the United States Securities and Exchange Commission’s lawsuit against Ripple, citing violations of South Korea’s Capital Markets Act. They likened Terraform’s actions in South Korea to the sale of XRP (XRPUSD) to investors.
In response, the defense argued that American law does not apply in South Korea and pointed out that the government had consistently stated since 2017 that virtual assets were not classified as financial products (securities). They maintained that the Capital Markets law could not be applied retroactively.
In February, the SEC filed a lawsuit against Terraform and Kwon for fraud.
In November 2022, South Korean authorities seized 140 billion won, equivalent to approximately $105 million at that time, from Shin. The allegation was that Shin had sold LUNA tokens of that value, knowing their worth would decrease.
Defense lawyers contested this charge. Unlike Terraform’s co-founder Do Kwon, Shin remained in South Korea following the company’s collapse in May 2022. He made his first court appearance in November 2022 and was indicted on fraud charges in April. South Korea has issued an arrest warrant for Kwon, who is currently residing in Montenegro.