South Korean Court Determines LUNA is Not a Security in Terra Co-Founder's Case

In the case of Terra co-founder Hyun-seong Shin, a South Korean district court has ruled that LUNA, the native token of the LUNA ecosystem, is not a security under the country's Capital Markets Act. As a result, the court dismissed charges of security violations against the former CEO of Terraform Labs.

The southern district court in Seoul rejected the prosecution's appeal to confiscate Shin's assets and arrest him based on securities law violations. The prosecution had argued that fraudulent transactions involving LUNA violated the Capital Market Act, in addition to property crimes (fraud), which could have led to property confiscation, according to a local daily report.

The court stated that it was hard to view LUNA as a financial investment product regulated by the Capital Markets Act. In rejecting the prosecution's request for asset confiscation, the court found it difficult to determine whether the assets in question were obtained through criminal activity or derived from such actions.

The ruling is significant because it explicitly states that LUNA is not a security. Previous courts have used more cautious language, such as "there is room for dispute in terms of the law" and "it is questionable whether the Capital Market Act can be applied."

The attorney for the former CEO revealed that the court had denied the prosecution's arrest warrant requests for his client and other individuals involved in the case. Based on the court's decision, he added that LUNA could not easily be considered an investment product.

The current court ruling frames the Terra-LUNA case as one of fraud and breach of trust rather than a violation of the Capital Markets Act. Nonetheless, the prosecution continues to focus on the securities aspect of the native token and has appealed the lower district court's decision to the Supreme Court.

In contrast, the United States Securities and Exchange Commission (SEC) has charged Terraform Labs and its founder, Do Kwon, with securities law violations. However, Kwon's legal team has refuted the SEC's securities fraud allegations.