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Daniel Shin Indicted in S. Korea, Kwon’s Hearing in Montenegro Set, Seoul Court Declares LUNA Non-Security and More

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Court Case

Last month, local reports from Montenegro confirmed the arrest of Terraform Labs co-founder Kwon Do-hyeong alongside an associate at an airport in Podgorica while attempting to fly out of the Southeastern Europe country. Authorities said Do Kwon was taken into custody for falsifying travel documents and later added that the case would be handled locally. Here is a recap of all the events that have unfolded since:

Do Kwon will face charges in Montenegro next month

Kwon was arrested alongside former Terraform Labs (TFL) chief financial officer Han Chang-jun, attempting to take a private flight to Dubai, police confirmed. A court in Podgorica added more time to their detention there, the justification being that the pair posed a flight risk.

New court documents now show that authorities in the country already began a legal process for the duo's alleged violations. Citing official Dusko Milanovic at the Prosecutor’s office in Podgorica, Bloomberg reported earlier this week that the Montenegrin court has a May 11 hearing for Kwon's charges of using a fake Costa Rican passport to travel. If Kwon and Chang-jun are found guilty, they could serve sentences between three months and five years.

Per a separate report from DL News, Kwon's accomplice and travel companion Chang-jun bought an apartment worth $2.2 million in Belgrade back in September. The two allegedly stayed in the luxurious apartment for several months, even establishing a fresh enterprise in Serbia using Kwon's true identity.

Not to forget, the US and Kwon’s home country South Korea have requested to have the former crypto executive extradited. Through an interpreter, Justice Minister of Montenegro Marko Kovač said that when faced with multiple extradition requests, the decision on which state to extradite the individual to is made after considering various factors, including the seriousness of the crime committed, when and where the crime was committed, the order in which the extradition requests were received, and more.

Kwon's lawyers pour cold water on the SEC's claims

In the US, lawyers representing Do Kwon have asked the District Court for the Southern District of New York to throw out the case brought against the embattled crypto entrepreneur by the Securities and Exchange Commission. In a submission to the court on April 21, his legal team said the SEC could not provide sufficient evidence to prove Kwon's involvement in duping US investors in connection with the collapse of UST and LUNA.

The lawyers claimed that the UST stablecoin should be treated as a currency rather than a security. This would mean that the watchdog body is out of its regulatory purview – could not prove personal jurisdiction. His defense team further pointed out that the SEC lacks the jurisdiction to regulate the digital assets involved in this case, as Congress has yet to confer such powers upon it. They also argued that Terraform Labs had not engaged in any public offerings of securities that would have necessitated registration with the SEC.

Korean authorities asked Binance to freeze Kwon’s crypto assets on the exchange

Earlier this month, prosecutors in Korea requested Binance to rescind Kwon's (and his co-conspirators') ability to access assets worth about 414.5 billion won ($310.6 million). The regulators believe that the funds are part of Kwon’s illicit assets, directly linking about 91.4 billion won ($68.5 million) to him. Binance confirmed cooperating with prosecutors and providing all possible assistance in the ongoing investigation. The exchange didn’t communicate more details, given that several investigations into Kwon are ongoing.

There could be more to uncover about Kwon’s dealings

Last week, United States District Judge Jed Rakoff rejected a motion by Do Kwon asking the court to hold the US SEC back from accessing certain records logged with the Monetary Authority of Singapore (MAS). Local news outlets in South Korea also reported at the time (April 17) that Kwon sent $7 million to Seoul-based law firm Kim & Chang just before his crypto empire went boom. Such a move could indicate that he knew what to expect after such a spectacular breakdown.

Authorities continue probing the source of the funds. Even though Kwon gathered a substantial amount of wealth, Korean authorities cannot seize any of the connected assets since he purportedly converted most of them into Bitcoin through overseas crypto exchanges rather than investing them in physical assets.

Seoul Southern District Court rules against branding LUNA a security

In South Korea, where Kwon is battling claims that he violated Capital Markets laws, a court ruled on Monday that LUNA Classic (rebranded from LUNA) is not a security. The verdict marked the first time the court has ruled against classifying LUNA as a security – a matter that has been obstructing probes. The Seoul Southern District Court, in two separate rulings (reached on November 15 and February 16), determined that LUNC does not satisfy the tenets of a financial investment product regulated by The Capital Markets Act. Nevertheless, according to the report, the prosecution team has sought recourse from the Supreme Court.

Shin freed of securities violations claims

Kwon's business partner at Terraform Labs, Shin Hyun-seong, saw a reprieve, too, as the court equally rejected claims that he violated securities laws. Making the statement alongside the ruling on LUNA's classification, the court thwarted an appeal that would have allowed regulators to take over his property. His legal side corroborated that the court rejected all ten of the prosecution's requests for arrest warrants against Shin and others. As a result of the decision, the prosecutors must onwards prove that Shin and his associates committed fraud and breached trust rather than just violating the Capital Markets Act.

Shin and nine other Terraform Labs employees indicted in South Korea

In the latest development on Tuesday, reports from South Korea indicate that up to ten individuals associated with Terraform Labs, including co-founder Shin, have been indicted. The legal action from the Seoul Southern District Prosecutors' Office comes after nearly a dozen months of investigation into Terra, whose ecosystem imploded last May. The financial crimes unit of the prosecution team accused Shin and seven others of fraud. The former executive is said to have deliberately misled investors and falsely advertised the crypto project, well aware of the foul involved.

“Terraform Labs, the platform that ran a blockchain-based stablecoin business, was a fabrication all along,” Dan Sung-han, the financial crime team's director, declared.

The indictment also levied bribery charges against the two other individuals. Tuesday's allegations come a day after the district court in Seoul denied the prosecution's request to charge Shin for violating security law. Through his lawyers, Shin, who is not in custody currently, rejected the claims of promoting Terra in his firm's payment system.  The US SEC previously made similar accusations of Kwon and his accomplices disguising regular fiat currency transactions on the Chai platform to appear as if they were processed in Terra's native token.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.