Terraform Labs, the Terra blockchain developer, stated that the prosecution of co-founder Do Kwon in South Korea had become political. According to the company, prosecutors widened the definition of a security in response to public pressure.
On Sept. 14, prosecutors in South Korea issued an arrest warrant for Kwon for violating the country's stock market rules. Terraform Labs, on the other hand, offered an argument that Terra, now known as its new token, Luna Classic (LUNC), is not legally a security and is not subject to capital markets legislation.
"We believe that this case has become highly politicized, and that the actions of the Korean prosecutors demonstrate unfairness and a failure to uphold basic rights guaranteed under Korean law," a Terraform Labs spokesman told the Wall Street Journal.
The representative said that prosecutors had changed the definition of a security due to intense public criticism following the demise of Terra and TerraUSD (UST), the connected algorithmic stablecoin that is now TerraUSD Classic (USTC).
There is currently no legal definition of non-standard securities issued using blockchain in the nation's capital market or electronic securities systems.
The argument put out by Terraform Labs is based on the murky regulatory status of cryptocurrencies and the companies that create and distribute them.
In a government paper that was released in May, South Korea's plans to build a crypto framework by 2024 were further revealed.
The Financial Services Commission (FSC), the country's financial authority, will have developed standards for security tokens by the end of 2022.
Terraform Labs declined to comment on Kwon's whereabouts due to potential physical security threats. Even though Interpol issued a warning to international law enforcement, the co-founder insists he is not attempting to hide.
Kwon informed his Twitter followers this week that he hadn't seen his name on Interpol's list of people to "locate and provisionally arrest [...] pending extradition, surrender, or similar legal action." It should be noted, however, that the agency does not publicly post all names.
"I'm making zero effort to hide," Kwon tweeted.
After Terra's algorithmic stablecoin TerraUSD Classic (USTC), formerly TerraUSD (UST), depegged from the US dollar and dropped to almost zero in a couple of weeks, Kwon came to the attention of South Korean authorities. The value of Terra (LUNA), now known as Terra Classic (LUNC), decreased as a result of liquidity issues that were observed across various platforms.
As a result of alleged violations of financial markets legislation, a South Korean court later issued an arrest warrant for Kwon and five individuals connected to Terra.
South Korean financial authorities searched the offices of the cryptocurrency exchanges Bithumb, Coinone, Gopax, Korbit, and Upbit in July in connection with the Terra collapse.