Defendants in 'Terra' Case Deny All Charges... "Crash After Breaking Ties with Kwon Do-hyung"

Prosecution: "Criminal Proceeds Flowing to Kim & Chang Handling the Defense"

Defendants including Shin Hyun-sung, former Chief Executive Officer of Chai Corporation who oversaw the cryptocurrency 'Terra' related business and is accused of causing massive losses to investors, all denied allegations of collusion with Terraform Labs CEO Kwon Do-hyung at their first trial.

[Image source=Yonhap News]

Shin's lawyer stated at the first trial held on the 30th at the Seoul Southern District Court Criminal Division 14 (Presiding Judge Jang Sung-hoon), "Shin parted ways with Kwon Do-hyung in business in 2020," and argued, "The cause of the Terra and Luna crash was the reckless operation of the Anchor Protocol (a virtual asset investment method) conducted by Kwon after their separation and external attacks." He added, "Shin is unrelated."

The lawyer emphasized, "The investigation into Shin started from the premise that 'the Terra project was impossible from the start due to regulations,' but there were no regulations in Korea banning virtual asset payment services," stressing that Shin did not initiate the Terra project to deceive investors.

Shin's side also denied the securities nature of the cryptocurrency. The lawyer said, "The Korean Capital Markets Act differs from U.S. law, according to academia and financial authorities," and added, "Since the government announced multiple times since 2017 that virtual assets do not qualify as financial products (securities), applying the Capital Markets Act retroactively to operators who conducted business based on those announcements violates the principle of legality."

The lawyer claimed, "When it became impossible to investigate Kwon Do-hyung, the prosecution focused its investigation on defendant Shin Hyun-sung from mid-July 2020," and argued, "The core of the investigation is to identify the cause of the Terra and Luna crash and hold the responsible party accountable."

Seven other defendants, including Choi, who were indicted alongside Shin, also denied collusion, stating they had withdrawn from Kwon's business before the business structure that triggered the coin crash was designed.

The defense lawyers also rebutted the prosecution's claims that there were flaws in the Terra and Luna blockchain algorithms and that blockchain was not used in the Terra project's payment system. They said, "The blockchain algorithm underwent mathematical verification, and no one raised issues about it before or after this case."

At the end of the trial, the prosecution pointed out the need for clarification regarding suspicions that funds from Terraform Labs flowed to Kim & Chang, one of the defendant's legal teams. The prosecution stated, "Criminal proceeds flowed to Kim & Chang, but this has not been clarified yet. Depending on the progress of the case, Kim & Chang's status as either counsel or a party related to the case is unclear, raising concerns about this matter." Kim & Chang responded, "We are not aware of such circumstances, and since we have a separate retainer agreement with the defendants, we have the qualification as their counsel."

The court said, "I cannot think of any legal grounds on which the qualification of counsel would be questioned," and added, "If a detailed response from the defense side is desired, please submit a written request with specific legal grounds."

Shin is accused of colluding with Kwon to deceive global investors by continuously manipulating transactions and making false promotions despite knowing that the Terra coin's price stabilization algorithm could not be realized, thereby attracting large-scale investments and causing massive losses. Kwon, identified as the main culprit in the early Terra and Luna incident, was arrested in Montenegro last March and is currently on trial. Prosecutors from both South Korea and the United States are pursuing his extradition.

Shin, who co-founded Terraform Labs, the issuer of Terra and Luna, with Kwon, was indicted without detention on April 25 on charges including fraud, breach of trust, embezzlement, mediation of breach of trust, breach of duty, and violations of the Capital Markets Act, Electronic Financial Transactions Act, and Specific Financial Information Act under the Act on the Aggravated Punishment of Specific Economic Crimes. The prosecution believes that Shin and other defendants obtained approximately 462.9 billion won in illicit gains and habitually defrauded victims of about 376.9 billion won in total.