Luna fiasco escalates into class action by victims

A Bitcoin price chart is displayed at a customer service center of Bithumb in Seoul, Wednesday. Crypytocurrencies are widening their losses in the wake of the collapses of Terra and Luna. Yonhap

By Lee Min-hyung

The devastated investors of Terra and Luna are moving to take class action against Do Kwon, co-founder of Terraform Labs, which developed the scandal-tainted cryptocurrencies.

LKB & Partners, a Seoul-based law firm, sued him and filed a provisional attachment of his assets, Thursday, holding him responsible for the recent crash of the two coins, the values of which have in about a week plummeted to near zero.

A group of 1,700 victims of the fiasco also share the same plan to sue Kwon and Shin Hyun-sung, better known by his English name, Daniel Shin, the co-founder of the company, to Seoul Southern District Court.

As the cryptocurrency industry is still in a legal grey area here, it is not clear whether the investors will be able to get any compensation from Kwon and his company.

Despite the investors moving to take legal action, Kwon recently shared his plan to launch a decentralized exchange that will operate under the new Terra 2.0 ecosystem, as part of an updated initiative to set up a new chain without an algorithmic stablecoin.

But as his latest Terra stablecoin project ended in spectacular failure, crypto investors and moguls are expressing skepticism over Kwon's revival plan.

According to the industry, the National Tax Service conducted a special tax investigation on Terraform Labs and its parent firm, The Encore Company, in June of last year over their alleged evasion of paying tens of billions of won in corporate and income taxes.

Officials from the authority were unavailable for comment.

Korea's financial authorities are also stepping up monitoring of crypto exchanges, so that they can figure out the exact scale of damages to retail investors. According to the Financial Services Commission, the number of Luna's Korean holders reached 280,000 and they held 70 billion Luna tokens.

With the Luna scandal escalating fear sentiment here and abroad, local crypto exchanges decided to delist the two tokens last week. Under the decision, Luna cannot be traded through Upbit, the nation's largest crypto exchange, from May 20. Bithumb will also follow suit on May 27.

All eyes are also on whether the revived Financial and Securities Crimes Joint Investigation Team under the country's prosecution will launch a probe into the Luna scandal. The organization was disbanded in January 2020, but was launched once again Wednesday, shortly after prosecutor-turned-President Yoon Suk-yeol took office last week.

Even if Kwon and his company face multiple lawsuits here and abroad, it still appears that it will be hard for Terra and Luna investors to be compensated.

"Korea's financial authorities have reiterated their warning on crypto investment for the past few years due to its high price volatility and the legal ambiguity surrounding the crypto industry," Sejong University business professor Kim Dae-jong said. "The latest scandal is different from conventional securities fraud, as there is not a single legal safeguard to protect crypto victims."

Lee Min-hyung

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