The recent court judgment in Seoul, South Korea, regarding the cryptocurrency “Luna” is significant as it categorically states that it is not a security. The court dismissed the prosecution’s claim that Luna is an investment contract security regulated by the Capital Markets Act. This decision is noteworthy as other courts have used reserved expressions and questioned whether Luna has securities properties in previous cases.
The prosecution had requested confiscation preservation and collection preservation of former CEO Shin’s property, but the court dismissed the request, stating that the property subject to the claim was not acquired through a crime or derived from criminal proceeds.
The prosecution argued that Luna’s fraudulent transactions violated the Capital Markets Act and property-related crimes, but the court found it difficult to determine that Luna falls under the financial investment product regulated by the Capital Markets Act based on the data submitted by the prosecution.
Former Luna CEO fraud allegations
The issue in the trial against former CEO Shin and others is likely to be focused on fraud and breach of trust rather than violation of the Capital Markets Act, despite the prosecution’s efforts to prove Luna’s stackability. Some predict that the U.S. Securities and Exchange Commission’s lawsuit against Terraform Labs CEO Kwon Do-hyeong on fraud charges may affect the domestic trial, as the SEC has deemed Luna to be securities. However, some legal experts argue that this is the SEC’s argument and not a judgment by the U.S. judiciary.
There have been previous cases in South Korea where courts have ruled that cryptocurrency does not qualify as securities. In March 2020, the Southern District Court dismissed a damages lawsuit filed by cryptocurrency investors against an issuer, stating that the cryptocurrency could not be regarded as investment contract securities. The court noted that while revenue is distributed by holding the cryptocurrency, there was insufficient proof of book manipulation and market manipulation.