The Supreme Court of South Korea has ruled that Terra Luna, the cryptocurrency at the centre of a massive market collapse, is not a financial investment product under existing laws.
While the ruling does not determine whether virtual assets can be considered securities, legal experts believe it will influence future court decisions, local news report stated.
The decision was announced following an appeal by prosecutors seeking the seizure and preservation of assets belonging to former Terraform Labs co-CEO Shin Hyun-Seong.
The 3rd Division of the Supreme Court, led by Chief Justice Oh Seok-jun, dismissed the appeal, effectively upholding previous rulings by lower courts.
Legal Battle Over Terra Luna’s Status
The prosecution had argued that Luna should be classified as a security under South Korea’s Capital Market and Financial Investment Business Act. This classification would have allowed the authorities to seize assets from Terraform Labs’ executives, claiming they had violated securities laws.
However, the Seoul Southern District Court rejected this argument in November 2022, stating that the prosecution failed to provide sufficient evidence that Luna should be considered a financial investment product.
A second trial court upheld this ruling in February 2023, leading prosecutors to escalate the case to the Supreme Court.
After a legal battle spanning three years, the Supreme Court has now delivered its final verdict. The court stated that there was no violation of constitutional or legal principles in the previous rulings and dismissed the prosecution’s appeal.
Implications for Future Crypto Cases
Legal experts believe this decision will set a precedent for how South Korean courts handle virtual asset-related cases. Attorney Kim Jeong-cheol of Woori Law Firm noted that the ruling not only rejects the classification of Luna as a security but also clarifies that the broader category of financial investment products does not apply to it.
Since Luna and Terraform Labs were at the centre of one of the biggest crypto collapses, this decision could affect future lawsuits and regulatory policies in South Korea. If virtual assets cannot be classified as securities under current laws, regulatory authorities may have to reconsider how they oversee the crypto industry.
The ruling also impacts the criminal proceedings against Shin Hyun-seong and other Terraform Labs executives. If violations of the Capital Market Act are not recognized, potential penalties could be significantly reduced.
Furthermore, civil lawsuits filed by investors who lost money in the Luna collapse may also face new legal hurdles.
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Prosecutors’ Efforts to Seize Terraform Executives’ Assets
Prosecutors initially sought to confiscate and freeze Shin Hyun-seong’s assets, arguing that he had obtained 154.1 billion won ($115 million) in illegal gains. His assets, which include real estate properties in Seoul, remain frozen under separate legal provisions.
However, the Supreme Court’s ruling makes it more difficult for authorities to seize these assets based on securities law violations.
A spokesperson from the Seoul Southern District Prosecutors’ Office stated that the criminal trial against Shin and other executives is ongoing, and authorities will await the final verdict before taking further action.
Do Kwon’s Extradition Faces Delay
In a related development, the Constitutional Court of Montenegro has temporarily halted the extradition of Do Kwon, the co-founder of Terraform Labs. Kwon, who is wanted by both South Korean and U.S. authorities, is appealing his extradition order. The court is now reviewing the case, which could delay his transfer to either country.
Do Kwon and Terraform Labs were accused of misleading investors and manipulating transactions, allegedly making 462.9 billion won ($345 million) in illicit profits. His extradition remains a key focus for international regulators, given the global impact of Terra Luna’s collapse.
The Supreme Court’s ruling on Terra Luna marks a significant moment in South Korea’s legal treatment of cryptocurrencies. While it does not establish a clear legal framework for virtual assets, it sends a strong message that current securities laws may not fully apply to crypto cases.
Also Read: Terra Founder Do Kwon’s Fate Sealed As Montenegro Confirms Extradition Agreement