Terraform Labs founder and CEO Do Kwon now may face severe punishment with South Korean prosecutors recently charging him for violating the capital market law, not just on fraud allegations, legal experts said Thursday.

The Seoul Southern District Prosecutors Office said Wednesday it has issued arrest warrants for Kwon and five others, including fellow Terraform labs founding member Nicholas Platias on charges of violating the capital market law. While a group of victims’ move to file a complaint against Kwon on charges mostly centered around fraud may not be able to put the 31-year-old CEO behind the bars, the prosecutor’s latest decision might.

“The prosecutors’ move has now made this a criminal case based on the allegations including violations of Korea's capital markets law, which will be somewhat a game-changer," an attorney surnamed Lee told The Korea Herald.

“Prosecutors are likely to charge Kwon and his suspected accomplices with violations including the violation of the capital markets law, the FSCMA, which prohibits unfair trading related activities. The notable thing is that this allegation should be based on the view that the terraUSD and luna coins are securities under the law, which will be the first case ever in Korea where the prosecutors or any other authorities make a judgment to view certain cryptocurrencies as securities.”

Under the capital markets law, Kwon and the others may be punished by imprisonment of not less than a year or a fine of maximum 3 to 5 times profit accrued or loss avoided by the violation if the allegations are proved true. White-collar criminals can face up to life in prison, but the serious convictions usually result in sentences of around five to 10 years in prison.

“But the devil is in the details and we’ll have to see how prosecutors carry this out in court,” Lee added.

Another attorney, who requested anonymity as he is “closely involved” with the Do Kwon case, claims that the troubled CEO could even face a life in prison, due to the snowballing number of victims.

“The math is that with the prosecutors charging of violating the capital market law, there are now more victims and their size can put Kwon behind the bars for a lifetime,” an attorney at one of the country's top five law firms said, requesting anonymity.

“It’s also about seeing the case as a matter of ‘investment contract securities.’ In Korea, the only similar case was when the Financial Services Commission in April decided to classify Musicow, a fractional investment platform that deals in music copyrights, as a security, specifically an investment contract, whereas there are more cases in the US,” the attorney added.

An investment contract is a legal document or trade between two parties where one party invests money with the intent of receiving a return.

The attorneys stressed that the legal battle was still in its early stages and that Do Kwon’s case would likely take months or even years.

Kwon’s whereabouts are currently unknown, though he has admitted in several media reports he had moved to Singapore. Local media reports said last month he hired Korean attorneys to represent him in upcoming lawsuits. In an August interview with online crypto media Coinage, Kwon said Korea’s investigative authorities had yet to contact him.

Though the total number of victims and the size of the loss is not yet known, terraUSD and its sister coin luna’s $40 billion crash in May caused some 280,000 local investors holding 70 billion of the troubled tokens losing large amounts of their money in the first wave of the shock.

UST or terraUSD was designed as a US dollar-pegged stablecoin, while luna aided UST to keep its peg as it moved in tandem.

Since May, prosecutors have raided the home of Terraform Labs co-founder Daniel Shin, major crypto exchanges and offices of firms suspected of being involved in the matter as part of their widening investigation.

Prosecutors have currently placed “a notification upon arrival” on Kwon, in which they will be alerted upon his entry into Korea.

(mkjung@heraldcorp.com)