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(Kitco News) -
Terraform Labs co-founder Hyun-Seong Shin, also known as Daniel Shin, had his first hearing in a South Korean court today on charges related to the collapse of the Terra-Luna ecosystem.
According to a report from News1 Korea published earlier on Monday, a preliminary hearing for Shin and seven other alleged accomplices was held at 10 am local time in a Seoul Southern District Court. Prosecutors allege that Shin and his former associates deceived investors and manipulated the prices of the Terra and Luna tokens from the outset of the project in 2018, reaping “illicit profits” of roughly 462.9 billion Korean won ($354 million).
The first trial was originally scheduled to be held on May 26, but it was postponed due to concerns over the impartiality of the chief judge chosen for the original trial, who wrote a showcase of Shin as a business success story while working as a reporter in 2010.
The Financial Crime Investigation Bureau (FCIB) of the Seoul Southern District Prosecution Service indicted Shin and his alleged co-conspirators in April. According to ChosunBiz, Shin’s next preliminary trial date is scheduled for Aug. 28.
On June 7, the lead prosecutor of South Korea’s investigation into the collapse of Terraform Labs said that company co-founder Do Kwon could serve decades-long consecutive prison sentences in both his native country and the United States.
Kwon and Terraform’s chief financial officer Chang-Joon Han were arrested in Montenegro on Mar. 23 after being caught attempting to travel to Dubai under fake Costa Rican traveling documents. The pair also had Belgian and South Korean travel documents, and Montenegrin authorities said the Belgian documents were also forged.
Sunghan Dan, director of the FCIB at the Seoul Southern District Prosecution Service, told Bloomberg that Kwon could conceivably be tried and sentenced in South Korea, then “be extradited to the US and face trial there, and then have the sentence executed in South Korea and the US after that.”
Dan said that he expects Kwon to get a record-setting financial fraud sentence in excess of 40 years, and he believes that the former executive should be extradited to his country first. “This is the largest financial fraud or financial securities fraud case that has ever happened in South Korea,” he said.
Both the United States and South Korea are seeking Kwon’s extradition, and the countries have also requested Kwon’s laptops and other devices on suspicion that they might contain evidence of crimes and cryptocurrency.
The pressure to capture Kwon had been mounting since he fled his native South Korea following the collapse of the Terra ecosystem in May 2022, with a South Korean court issuing an arrest warrant on Sept. 17 and Interpol issuing a Red Notice two weeks later.
The United States was the latest entity to target Kwon with criminal charges. On Feb. 17, the U.S. Securities and Exchange Commission (SEC) charged Do Kwon with securities fraud, writing that Kwon and Terraform orchestrated “a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.”
The SEC said Terraform and Kwon “touted and marketed Terra USD (UST) as a ‘yield-bearing’ stablecoin, which they advertised as paying as much as 20 percent interest through the Anchor Protocol,” and that they “repeatedly misled and deceived investors that a popular Korean mobile payment application used the Terra blockchain to settle transactions that would accrue value to LUNA.”
The complaint also alleges that Kwon and others at Terraform “misled investors about UST’s stability before it ultimately depegged from the U.S. dollar and became nearly worthless.”
The SEC said that Kwon transferred over 10,000 Bitcoin from Terraform Labs to an offline cold wallet and converted some of the tokens into cash via a Swiss bank. The agency claims Kwon and other insiders have drawn from the cold wallet several times since the collapse of the stablecoin project.
“We can see that it’s coming out of the wallet,” Dan said, “but we are not aware who might be in possession of the cold wallet or how they’re withdrawing it, on what methods.”
It is not yet clear whether Montenegro will end up extraditing Kwon to South Korea or the United States once their justice system is finished with him.
“It’s our understanding that the extradition process can take up to nine months, depending on how long the suspect has been in custody and so forth,” Dan said.
