In a recent ruling, the Seoul Southern District Court has declared that Terra Classic (LUNC) is not a security. Terra Classic is the native token of the Terra blockchain, which suffered a dramatic implosion last year. The court’s decision on Feb. 16th states that it is difficult to categorize LUNC as a financial investment product regulated by The Capital Markets Act. This ruling contradicts earlier expressions by the court, which stated that “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 is the first time the court has expressed categorically that LUNC is not a security. As a result, South Korean prosecutors are unable to seize Terraform Labs co-founder Shin Hyun-Seung’s (aka Daniel Shin’s) assets, as the court rejected their request. In November, prosecutors sought to seize more than $100 million worth of assets belonging to Shin for his role in the collapse of the Terra ecosystem. The court rejected the request for confiscation, stating that the assets must be returned to victims of the Terra collapse and not to the national treasury.
The Terra ecosystem, which included LUNC (then known as LUNA) and the TerraUSD (UST) stablecoin, suffered a collapse last May. UST lost its 1:1 peg against the U.S. dollar, wiping out around $40 billion in investor wealth. The Terra collapse also pushed several crypto firms toward insolvency, including Three Arrows Capital and Vauld.
The Korean court’s decision that LUNC is not a security differs from that of U.S. regulators. The U.S. Securities and Exchange Commission (SEC) sued Terraform Labs, the company behind the failed Terra tokens, and its co-founder, Do Kwon, earlier this year. The SEC called LUNC a crypto asset security. However, lawyers for Kwon have requested a U.S. court to dismiss charges brought against him by the SEC partly for lack of jurisdiction. Recently, Kwon was arrested in Montenegro for attempting to travel with falsified documents and was officially charged with a fake passport charge in Montenegro last week.
Implications of the Court Ruling
The Korean court’s decision that LUNC is not a security is a positive development for Terraform Labs and the Terra ecosystem. If LUNC were categorized as a security, it would be subject to extensive regulation, which would limit its growth potential. Additionally, the court’s ruling prevents South Korean prosecutors from seizing the assets of Shin Hyun-Seung, co-founder of Terraform Labs. However, the SEC’s categorization of LUNC as a crypto asset security remains a major obstacle for Terraform Labs in the United States.
Furthermore, the collapse of the Terra ecosystem serves as a cautionary tale for investors in the crypto space. The volatility of the crypto market, combined with the lack of regulation, creates an environment that is ripe for fraud and manipulation. As the crypto market continues to grow, regulators around the world must find ways to protect investors from such risks while also fostering innovation in the industry.
