Is Crypto a Security? South Korean Courts Can’t Decide – and It’s Causing Legal Backlogs

Is Cryptocurrency Considered a Security? - South Korean Courts Unable to Reach Conclusion, New Report Suggests Legal Complications Arising from the Controversy.

South Korean courts are facing legal backlogs as they struggle to determine if crypto is a security.

📷Image Source: Tim Alper

Last updated: February 25, 2024 18:30 EST | 3 min read

📷Image Source: Is Crypto a Security? South Korean Courts Can’t Decide – and It’s Causing Legal Backlogs

“Is crypto a security?” – South Korean courts cannot seem to decide on the answer, and a new report claims the conundrum is causing a legal backlog.

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According to a report by Newsis, individual judges at the Seoul Southern District Court find themselves drawn into debates about whether certain coins can be considered to have “security properties.”

‘Is Crypto a Security?’ – Judges Forced to Make Difficult Decisions

The Seoul Southern District Court is currently handling two of the highest-profile altcoin “price manipulation” cases in South Korean legal history.

The court is now handling various cases relating to the Terra ecosystem crash of May 2022, as well as the art-themed Pica Coin token.

Both cases hinge on prosecution allegations that the coins were knowingly sold as securities.

Currently, South Korean law does not recognize any coin as having security status. However, judges have been pressured to accept precedents from the US.

Washington-based regulators have declared that some coins can be considered securities, while others have commodity properties.

📷Image Source: LUNC prices over the past seven days. (Source: CoinGecko)

Terraform Labs, the firm behind Terra ecosystem coins like LUNC (formerly LUNA), has based much of its South Korean case around the notion that cryptoassets are not securities.

However, judges at the Seoul Southern District Court “have repeatedly agonized over judgments” on this matter. Newsis wrote:

“‘Is crypto a security?’ Seoul Southern District Court judges ask this question during every trial.”

📷Image Source: The Seoul Southern District Court. (Source: Ho Ro Jo [CC BY-SA 4.0])

Judges ‘Agonizing’ Over Difficult Crypto Decisions

A judge from the same court sentenced a former crypto exchange executive to four years in prison on February 15.

The executive was found guilty of securing a low-cap altcoin listing to drive up prices. However, in sentencing, the judge struck an exasperated note, stating:

“It is difficult to clearly recognize the illegality of the act. That is because there are no clear [legal] standards.”

Unnamed legal community experts claim that South Korea’s crypto market is “expanding,” and the number of fraud cases is increasing.

But, they say, South Korea lacks a “relevant legal framework” to deal with such matters.

In the Pica Coin case, prosecutors have urged the court to consider the token a security. This would allow them to press charges of price manipulation under the Capital Markets Act.

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However, defense lawyers for Pica Coin argue that “coins are not securities” under national law. During a hearing, a defense lawyer told the court:

“The Pica Coin [police] investigation was illegal. And the resulting prosecution is also illegal. This case was investigated and prosecuted in a country where virtual assets are not recognized as securities.”

Lee Jeong-yeop, CEO of the Lawjipsa legal firm and President of the Blockchain Law Society, said:

“It seems that [trials] will become protracted when courts have to examine possible [violations of] the Capital Markets Act. Crypto-related crime has caused an enormous amount of damage. But if judges decide that the Capital Markets Act does not apply in these cases, it will be problematic.”

If judges decide the Capital Markets Act does not apply, Lee suggests defendants should be “acquitted” or “receive reduced sentences.”

An unnamed former Supreme Court Justice added:

“In a criminal trial, there should be no room for expanded or analogical interpretation. So it would be difficult for a court to rule virtual assets have securities properties here. But in civil cases, it does seem possible.”

Kim Hyun-kwon, a lawyer at LKB & Partners, opined that “legal experts still have different opinions, so it is impossible to say definitively what is right or wrong.”

Kim concluded that in the absence of legislative change, a clearer picture would need to be constructed based on individual courts’ rulings on the matter.

Those seeking an answer to the question “Is crypto a security?” in South Korea appear to be left with no other choice but to wait.

Allegations of crypto fraud and crypto-related crime have dominated the headlines in South Korea this year. Police have reported a rise in crypto-related scams, bogus OTC deals, and crypto-powered drug trafficking.

Q&A Content:

Q: What are the highest-profile altcoin “price manipulation” cases currently being handled by the Seoul Southern District Court?

A: The Seoul Southern District Court is currently handling cases related to the Terra ecosystem crash of May 2022 and the art-themed Pica Coin token.

Q: Do South Korean judges consider crypto to be securities?

A: South Korean law currently does not recognize any coin as having security status. However, judges have been pressured to accept precedents from the US, where some coins are considered securities and others have commodity properties.

Q: What challenges do judges face when deciding on crypto-related cases?

A: Judges in South Korea repeatedly agonize over judgments regarding the security status of cryptocurrencies. The lack of clear legal standards makes it difficult for them to determine the legality of certain actions.

Q: How does the absence of a relevant legal framework affect South Korea’s crypto market?

A: South Korea’s crypto market is expanding, and the number of fraud cases is increasing. However, the lack of a relevant legal framework poses challenges in addressing these matters effectively.

Q: Can prosecutors press charges of price manipulation under the Capital Markets Act in the Pica Coin case?

A: Prosecutors have urged the court to consider Pica Coin a security, which would allow them to press charges of price manipulation under the Capital Markets Act. Defense lawyers argue that coins are not securities under national law.

Q: What are the potential consequences if the Capital Markets Act does not apply to crypto-related cases?

A: If the Capital Markets Act does not apply to crypto-related cases, it may lead to protracted trials and difficulties in prosecuting crypto-related crimes. The outcome will determine whether defendants should be acquitted or receive reduced sentences.

References:

1. Is Crypto a Security? South Korean Courts Can’t Decide – and It’s Causing Legal Backlogs
2. Solanabased Tsuka Coin Rockets 2500 Overnight Crypto Whales Say Coin Next
3. Terraform Labs
4. South Korean case around the notion that cryptoassets are not securities
5. Crypto: Is It Time to Rethink Regulations? | Business on Twitter
6. Follow Us on Google News
7. Wintermute Reports 400% Surge OTC Crypto Trading Volumes in 2023
8. Crypto-Powered Drug Trafficking

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