Investigation into Luna and Terra Damage Launched... Difficulties Diagnosed Starting from Applying Charges

No Definition of Virtual Asset as 'Money'
Investigation Limited to Cases with Complaints or Accusations
Recovery Impossible Without Victim Testimony

[Image source=Yonhap News]

[Asia Economy Reporter Seongpil Cho] Victims who suffered losses after investing in Luna and TerraUSD (UST) recently filed a complaint with the Seoul Southern District Prosecutors' Office Joint Investigation Team for Financial and Securities Crimes against Kwon Do-hyung, CEO of Terraform Labs, and the company entity. The charges include fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violation of the Act on the Regulation of Similar Receipt of Money. The joint investigation team is reviewing the complaint and coordinating the investigation schedule. Separately, the Cyber Crime Investigation Unit of the Seoul Metropolitan Police Agency has launched an investigation after detecting allegations that a Terraform Labs employee embezzled corporate funds. Earlier, the police had begun a preliminary investigation following the collapse of Luna and Terra.

Although both the prosecution and police have initiated investigations, there are criticisms that the efforts face inherent limitations. It is assessed that proving criminal charges under current laws is difficult, and there are restrictions on victim restitution.

The National Investigation Headquarters of the National Police Agency recently reported to the People Power Party on the "Investigation Status of Illegal Activities Related to Virtual Assets," stating that "there are limitations in applying charges under the Act on the Regulation of Similar Receipt of Money as specified in the complaint." Under current law, for similar receipt of money to be established, there must be an act of receiving ‘money’ from an unspecified number of people. However, whether virtual assets can be considered ‘money’ is not clearly defined in the Act on the Regulation of Similar Receipt of Money. Another limitation pointed out is that investigations can only begin after complaints and accusations follow the occurrence of multiple victims. Similar receipt crimes like the Luna and Terra cases typically pay returns to early investors with the principal of later investors, a so-called Ponzi scheme, which appears to cause no property damage initially, making it impossible to initiate investigations under the Act on the Regulation of Similar Receipt of Money. The National Investigation Headquarters noted, "The fact that investigations can only start after large-scale damage occurs exposes a limitation."

The National Investigation Headquarters also stated that victim restitution in such virtual asset crimes is not easy. Once damage is confirmed and a case is filed, it is highly likely that the suspect has concealed or disposed of criminal proceeds. Even if investigations proceed based on the fraud charges specified in the complaint, the lack of individual victim testimonies makes recovery practically impossible. Under current law, recovery of funds from fraud crimes requires proof of deception through victim testimonies and other evidence to secure restitution.

The police plan to actively cooperate with related government agencies such as the Financial Services Commission and the Ministry of Justice to ensure the smooth resolution of the Terra and Luna cases being investigated by the joint investigation team. For other virtual asset crimes, they plan to strengthen preventive activities. The police explained that they are already receiving ‘Suspicious Virtual Asset Transaction Reports’ and ‘Virtual Asset Market and Trend Information’ from the Financial Services Commission. Last month, they established a 24-hour hotline with the five major domestic exchanges. A National Investigation Headquarters official said, "Despite legal shortcomings, we are swiftly freezing virtual assets involved in illegal activities through the hotline to protect victims."