South Korea’s Justice Ministry is bringing the big guns out for LUNA.

Prosecutors in Seoul announced on Friday that they had assigned the LUNA/UST case to the recently revived Financial and Securities Crime Joint Investigation Team.

Nicknamed the “Yeouido Grim Reapers,” referring to Seoul’s financial district, the Financial and Securities Crime Joint Investigation Team have a well-deserved reputation for ruthlessness.

As ICON’s Min Kim recently Tweeted:

YEOUIDO Grim Reaper. Yeouido = Wall Street of Korea. Financial crime specialists. Extremely aggressive. They come for blood. Only Korean bankers understand what this means.”

The day before, a law firm representing five people who suffered losses from LUNA/UST filed criminal complaints against three people associated with Terraform Labs, including Do Kwon.

More specifically, prosecutors are essentially charging Kwon and his associates with fraud. From Yonhap:

According to the sources, prosecutors in charge of the case are looking into whether they can make a Ponzi scheme case against “Anchor Protocol,” under which depositors of TerraUSD are guaranteed a 20 percent annual return.

Anchor Protocol, an application facilitating contacts between TerraUSD depositors seeking financial returns and money borrowers, has been seen as instrumental in the recent growth of the stablecoin.

‘Kwon’s remarks promising returns could provide a key clue,” a prosecution official said.’

Kwon’s remarks came in this April 2021 tweet.

According to Coindesk Korea, however, the legal case is complicated, if not outright weak.

To be very precise, prosecutors are investigating Kwon and company for “similar deposit-taking,” which refers to “any deposit-taking or fund-raising activities without obtaining the relevant license from the financial authorities, which are subject to penal punishment under the current law.”

The problem is that most experts believe guaranteeing high returns using virtual assets does NOT constitute “similar deposit-taking.”

This is because the law — or at least the Korean version of it — specifically refers to “money.” Digital assets, however, do not constitute money.

That said, CoinDesk Korea also notes that we’re seeing more and more lower court decisions that DO recognize charges of “similar deposit-taking” using cryptocurrency.

For example, Seoul Central District Court ruled in December 2021 that guaranteeing profits using digital assets constituted “similar deposit-taking.”

A lawyer specializing in crypto noted, however, that this could make most virtual asset service providers guilty of the crime. Another lawyer said the use of the term “Annual Percentage Rate (APR)” makes DeFi seem like a financial product, and this could spark considerable controversy.

The Iconist’s Note: As this writer noted on Twitter, all of this is making me very uncomfortable.

Firstly, people could go to jail for this. Sure, the legal case seems a bit flimsy, but you don’t break out the Grim Reapers of Yeouido unless you’re out for blood. Even if they don’t get them for “similar deposit-taking,” they could very well find something else to nail them on. Because let’s face it — we’re ALL probably guilty of something if you look hard enough.

Maybe prosecutors will dig up substantive wrong-doing. Who knows. But for now, it seems what Kwon and Co. are really guilty of is encouraging people to invest in a crappy product. 

Bad business? Yes. Criminal activity? I’m not so sure.

Then there’s this whole business with promising APRs. If that constitutes illegal activity, pretty much every DeFi platform on the planet is seemingly one bad day or one pissed off liquidated account from a criminal complaint.

Anyway, it seems we need some regulatory clarity on this, and stat.