A district court in South Korea has ruled that LUNA, the native token of the Terra ecosystem, was not a security under the country’s Capital Markets Act, and dismissed security violation charges against co-founder Hyun-seung Shin.
According to local news outlet Ilyo Shinmun, the southern district court in Seoul rejected the prosecution’s appeal — who argued that LUNA’s fraudulent transactions breached the Capital Market Act and involved property crimes — for Shin’s arrest and confiscation of properties. The court noted that “It is difficult to see LUNA as a financial investment product regulated by the Capital Markets Act”, and rejected the prosecution’s argument that the property subject to the claim had been acquired through crime or asset derivation.
This ruling is significant as it outright states that LUNA was not a security, unlike previous courts that have used more cautious language. The judgment now transforms the Terra-LUNA saga into a case of fraud and breach of trust rather than a violation of the securities law. The prosecution, however, is still focused on the securities aspect of the native token, and has appealed the Supreme Court against the verdict of the lower district court.
The court’s decision contrasts with the stance of the United States Securities and Exchange Commission (SEC), which earlier this year charged Terraform Labs and its founder, Do Kwon, with violating securities laws.
Prosecutors previously requested to seize more than $100 million worth of Shin’s assets for his role in the collapse of the Terra ecosystem, but the court rejected this request. It further ruled that the assets must be returned to the victims of the Terra collapse, and not to the national treasury.
The Terra ecosystem, which included the LUNA token and the TerraUSD (UST) stablecoin, imploded last May when UST lost its 1:1 peg against the U.S. dollar, wiping out around $40 billion in investor wealth. The collapse also pushed several crypto firms toward insolvency, including Three Arrows Capital and Vauld.