The trial of payment platform developer Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin, and seven others got underway in Seoul Southern District Court in South Korea on Oct. 30, according to local news reports. Shin is accused of defrauding investors. Also at issue was whether or not LUNA (LUNA) is a security.
Shin left Terraform in 2020 “for business reasons,” his lawyer told the court. Shin was the CEO of Chai, a payments technology company that partnered with Kwon to form Terraform in 2019. According to Chosun Biz, the lawyer added:
“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.”
Anchor Protocol was the algorithm used to maintain the value of the dollar-pegged TerraUSD (UST) coin.
The defendants face multiple charges under at least four laws, including the Information Act. The prosecutor claimed, “They took advantage of the fact that investors had difficulty accessing information and had a low understanding of it.”
The prosecutor also said, “A business using virtual assets as a payment method cannot be established,” but the defense lawyer disputed that statement, saying there were no regulations on using virtual assets for payment when Terraform was founded.
The prosecution referred to the United States Securities and Exchange Commission case against Ripple as the basis for several charges relating to violations of South Korea’s Capital Markets Act, comparing the sale of XRP (XRP) to investors to the actions of Terraform in South Korea.
Related: SEC seeks to question Terraform Labs co-founder Daniel Shin in Korea
The defense responded that American law does not apply in South Korea and that “the government has announced several times since 2017 that virtual assets do not fall under the category of financial products (securities),” adding that the Capital Markets law could not be applied retroactively in any case.
The SEC sued Terraform and Kwon for fraud in February.
In November 2022, South Korean authorities seized 140 billion won, worth around $105 million at the time, from Shin. They alleged that Shin had sold LUNA worth that amount, knowing their value would fall. Defense lawyers denied that charge as well.
Unlike Terraforms co-founder Do Kwon, Shin remained in South Korea after the collapse of Terraform Labs 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, but he is currently in Montenegro.
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