The trial of Terraform Labs co-founder, Shin Hyun-Seong, also known as Daniel Shin, and seven others began on October 30 in South Korea. Shin faces allegations of defrauding investors, and the trial also involves questions regarding the classification of LUNA as a security.
Shin left Terraform in 2020, citing "business reasons" according to his lawyer. Currently, he serves as the CEO of Chai, a payments technology company. Chai had previously partnered with Do-hyung Kwon in 2019 to establish Terraform. The lawyer argued that Terraform's bankruptcy was due to issues with the operation of Anchor Protocol and external attacks following the dissolution of the partnership between Shin and Kwon. The lawyer asserted that these matters are unrelated to the defendants.
The defendants face multiple charges, invoking at least four different laws, including the Information Act. Prosecutors have alleged that the defendants took advantage of investors' difficulties in obtaining information and their limited understanding of the situation.
Another contentious issue raised is whether a business employing virtual assets as a payment method can be legally established. Prosecutors argue against it, while the defense contends that when Terraform was formed, there were no regulations governing the use of virtual assets for payments. The defense also stressed that U.S. law should not apply in South Korea and pointed out that the South Korean government had consistently stated since 2017 that virtual assets did not fall under the category of financial products (securities). Furthermore, they argued that the capital market law cannot be retroactively applied.
In February, the SEC charged Terraform and Kwon with fraud, and in November 2022, South Korean authorities seized a substantial amount from Shin, alleging he had foreknowledge of the LUNA value decline. Shin's defense refuted this claim. Unlike his co-founder Kwon, Shin has remained in South Korea since Terraform Labs' collapse in May 2022. Kwon is currently facing an arrest warrant but is located in Montenegro.
