Are LUNA Tokens Securities? South Korean Court Says No

Following the arrest of Do Kwon and his assistant Han in Montenegro, multiple countries launched an investigation into the Terra ecosystem's collapse. One critical aspect of the investigation is the classification of the Terra ecosystem tokens as securities, which is the basis for charges against Terraform Labs employees.

US SEC: LUNA is a security

One of the key factors leading to charges against Terraform Labs employees is the classification of the tokens of the Terra ecosystem as securities, which was done by the SEC in February of this year using the Howie test.

However, Kwon's lawyers have challenged the SEC's claim by filing a petition with the court on April 21st. The lawyers are appealing to a law that prohibits regulators from using federal securities law to establish jurisdiction over digital assets in this case. They also argue that the SEC lacks sufficient evidence to accuse Kwon of defrauding American investors.

Notably, the petition has been read by Fatman, a major critic of Terra, who ridiculed Kwon's excuses and called them a "superbly low-effort gaslighting attempt."

South Korea: It is not a security

Despite the SEC's opinion that LUNA tokens are securities, South Korean authorities hold the opposite view. On April 24, a South Korean court ruled that LUNA was not a security, as a local news agency reported:

"Based on the data provided by the prosecution, it is difficult to say that Luna falls under the scope of financial investment products regulated by the Capital Markets Act." – the court ruled.

This ruling is in contrast to the SEC's charges against Do Kwon and Terraform Labs employees for securities violations. The lawyer of the former CEO and co-founder of Terraform Labs, Hyun Song Shin, also said the court rejected the prosecutor's office's requests to arrest employees about ten times.

"The Arrest Court has rejected all 10 or so prosecution requests to issue arrest warrants for former CEO Shin and others involved in this case, consistently ruling that there is room for a dispute over whether the Capital Markets Law was passed. It is clear that the court considers that LUNA is difficult to consider as a financial investment product.”

However, despite the court's ruling, on April 25, the Financial Crimes Department of the Seoul Southern District Prosecutor's Office still brought charges against ten Terra employees. According to South Korea's KBS news agency report, they are accused of fraud, embezzlement, and abuse of investors' trust, but no charges related to securities have been filed.

This situation raises questions about the potential punishment for Terra employees. If Do Kwon is extradited from Montenegro to South Korea, he may escape the penalties provided by the SEC for the illegal use of securities. It also remains to be seen whether Kwon's attempts to dismiss the SEC charges will be successful, and whether the decision of the Korean court regarding the status of the LUNA token can be used in Kwon's defense. We will continue to Observe this investigation and keep you updated on any new developments.