South Korean prosecutors indicted Terraform Labs co-founder Shin Hyun-Seung (aka Daniel Shin) and nine others on multiple charges, including violations of capital markets law.
The formal charges come after months of investigation into the Terra ecosystem's dramatic implosion last year, which wiped out tens of billions in investor wealth. Bringing the charges, the Seoul Southern District Prosecutors' Office said Tuesday that Terra was bound to fail because it was a "fictitious" project and its algorithmic stablecoin TerraUSD was not feasible from the beginning.
Two related Terra tokens collapsed last May: luna and TerraUSD, which was often known by its ticker UST. Unlike normal asset-backed stablecoins, UST was backed by luna, whose price was set by the market. The Prosecutors' Office said the algorithm that helped keep UST at a stable price was impossible to get right.
The 10 people charged caused “astronomical damage” for investors while taking 463 billion won ($347 million) in profit, according to the prosecutors. Korean authorities are actively tracking these illegal gains and have frozen 247 billion won in assets so far, they said.
Daniel Shin's assets frozen
The frozen assets are part of a "restitution" request that was accepted in court to compensate victims and not part of a "forfeiture" request that was recently rejected to put the money into the national treasury.
The indictment comes a day after the Seoul Southern District Court ruled that Terra Classic — as luna was renamed following its implosion — is not a security, per Korea's Capital Markets Act. Still, prosecutors have called for the Supreme Court of Korea to rule on the matter.
Shin’s lawyers reiterated today that he split from the Terra project in 2020 and hasn’t had involvement in operations since. Prosecutors' "premise that Shin continued with the business despite warnings from financial authorities is incorrect," Shin's lawyers told Korea Daily.
Shin co-founded Terraform with Do Kwon
Shin is not currently in custody, after a South Korean court in December rejected a request to arrest him, saying he wasn’t likely to destroy evidence or pose a flight risk. He will remain free for now, pending trial.
Shin's co-founder Do Kwon, on the other hand, was recently detained in Montenegro for attempting to travel with falsified documents and last week was officially charged.
Kwon is also wanted by Korea and the U.S., where the Securities and Exchange Commission sued him and Terraform Labs. Lawyers for Kwon recently requested a U.S. court to dismiss the SEC's charges, partly for lack of jurisdiction.
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