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South Korea issues arrest warrants for the developers of the LUNA token, a guilty plea is entered in crypto’s first insider trading case and Celsius opens up about its "hero’s journey" to redemption.
South Korean prosecutors have issued an arrest warrant for Do Kwon, co-founder and CEO of Terraform Labs, who is accused of financial fraud for his role in the collapse of the LUNA token.
According to a report from South Korea’s Chosun news agency, Do Kwon and five other Terraform officials — all of whom reside in Singapore, where Terraform is based — were named in the arrest warrant.
All are alleged to have violated South Korea’s Capital Markets Act through the sale and marketing of unregistered securities.
According to the prosecutors, both the LUNA token and TerraUSD, an algorithmic stablecoin backed by LUNA, meet the definition of “investment contract securities”.
As in the US under the Howey Test, South Korea defines a security as the investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.
One day after the arrest warrant was issued, South Korea’s Ministry of Foreign Affairs said it has ordered the defendants to return to home voluntarily or see their passports nullified, as reported by South Korea’s Munhwa news.
In the latter case, prosecutors and the ministry will pursue an Interpol Red Notice, which would allow the defendants to be arrested in any jurisdiction.
Separately, multiple class action lawsuits have been filed by investors who lost money during the LUNA crash.
In California, US law firm Bragar Eagel & Squire has accused Do Kwon and other Terraform officials of carrying out a sophisticated securities fraud that was intended to “deceive retail investors” and encourage them “to purchase tokens at artificially inflated prices”.
Guilty plea entered in Coinbase insider trading case
Crypto’s first ever insider trading case shifted gears this week following a guilty plea from one defendant, who admitted to one count of conspiracy to commit wire fraud.
As reported by VIXIO in July, the US Department of Justice (DOJ) is pursuing criminal charges against three defendants accused of profiting from insider trading of crypto-assets that were newly listed on Coinbase.
In a statement, the DOJ said that Nikhil Wahi admitted to trading crypto-assets based on illegal tips received from his brother, Ishan Wahi, who was a Coinbase product manager at the time.
“Today’s guilty plea should serve as a reminder to those who participate in the cryptocurrency markets that the Southern District of New York will continue to steadfastly police frauds of all stripes and will adapt as technology evolves,” said US attorney Damian Williams.
“Nikhil Wahi now awaits sentencing for his crime and must also forfeit his illicit profits.”
In the US, wire fraud carries a maximum sentence of 20 years’ imprisonment, but Wahi is expected to receive a relatively light sentence, given the amounts involved.
In previous disclosures, the DOJ alleged that the Wahi brothers and Sameer Ramani, a mutual friend, collectively made about $1.5m from insider trades placed between July 2021 and May 2022.
In a parallel case, the Securities and Exchange Commission (SEC) is suing all three defendants for alleged violations of antifraud provisions in federal securities laws.
In May, Ishan Wahi was prevented by US law enforcement from boarding a plane to India, while Ramani, who normally resides in Texas, is still at large.
Celsius’ ‘hero’s journey’
Ever the optimists, this week Celsius revealed its plans to return to action following bankruptcy — a setback that one executive described as part of its “hero’s journey” to redemption.
During a recorded company strategy meeting, CEO Alex Mashinsky and Oren Blonstein, head of innovation, both said that a future Celsius will pivot away from lending services towards paid-for custody services.
“I think one of the foundational products that we’re going to offer in the future is custody, and the core concept of custody is that that’s your property and we’re holding it on your behalf,” said Blonstein.
“We have to show people that that principle of this being their property that we’re holding on their behalf means that they’re going to get it back.”
Blonstein said the first step to restore trust in Celsius will be to restore access to existing Custody account deposits.
Luckily, Celsius Custody account holders are at the front of the queue to redeem their assets, since they are not deemed unsecured creditors to Celsius, unlike those who have used its borrowing or lending services.
Celsius is referring to this custody-focused restructuring as operation "Kelvin", named after the unit of temperature.
Expanding on the “hero’s journey” theme, Mashinsky noted that many successful companies, including Pepsi, Delta and even Apple, have either suffered bankruptcy or have come close to it in their early days, only to triumph later.
“Are we going to come out of this stronger, like Apple? Or are we going to be in the dustbin of companies that were great or almost-great or great for a while, but disappear? The community is behind us,” he said.
MiCA a hit with Binance CEO
As one crypto CEO battles bankruptcy, another is currying favour with EU regulators.
This week, while speaking at Binance Blockchain Week in Paris, Binance CEO Changpeng Zhao described the EU’s Markets in Crypto-Assets Regulation (MiCA) as “fantastic”.
As quoted by CoinDesk, Zhao said he believes that MiCA will become a “global standard” for other jurisdictions to follow.
His only complaint is that MiCA is “a little bit strict” on stablecoins that are not based on European currencies.
"The drafts are not adopting USD-based stablecoins, which have 75 percent of the liquidity in the market," he said.
Instead, MiCA will apply certain restrictions to issuers of stablecoins that track non-European currencies, such as a physical presence in the EU and supervision by the European Banking Authority (EBA).
Although it may become a global standard, one jurisdiction that seems unlikely to follow MiCA’s lead is Singapore.
At the end of August, Ravi Menon, managing director at the Monetary Authority of Singapore (MAS), gave a speech in which he praised “digital asset innovation” but rejected “crypto-asset speculation”.
“MAS regards cryptocurrencies as unsuitable for use as money and as highly hazardous for retail investors,” he said.
Menon said that “adding frictions” to retail trading is something the MAS is considering, such as removing leverage and access to crypto credit services, but a total ban on retail trading is not currently under consideration.
