South Korean prosecutors on Tuesday indicted Terraform Labs co-founder Shin Hyun-seung for alleged fraudulent transactions related to the cryptocurrency project run by Terraform that collapsed last year. Shin, who hasn’t been arrested, rejected the allegations through his lawyers. He founded the company with Kwon Do-hyeong, who is under arrest in Europe and faces similar charges.

See related article: From billionaire to Montenegro jail: The rapid rise and fall of Terra chief Do Kwon

Fast facts

  • Shin and seven others were indicted for fraud, while two other individuals face charges that included alleged bribery, Dan Sung-han, the director of Seoul Southern District’s financial crime team, said on Tuesday at a press conference in the city.
  • The US$40 billion Terra-Luna stablecoin and cryptocurrency project of Terraform Labs collapsed in May last year. Shin set up the company with Kwon Do-hyeong, who is currently under arrest in Montenegro. Kwon was detained in the country last month with Terra’s chief financial officer Han Chang-joon for allegedly travelling with forged travel documents. 
  • Kwon also faces fraud charges in South Korea and the U.S. related to the Terra-Luna collapse. He has denied all the allegations.
  • “Terraform Labs, the platform that ran a blockchain-based stablecoin business, was a fabrication all along,” Dan said.
  • Daniel Shin’s part in the “financial fraud” is greater than that of Terraform chief Kwon Do-hyeong, Dan said, as Shin spearheaded the planning and promotion of the Terra stablecoin and the supporting crypto business as a project capable of real-world payment usage.
  • Dan alleged that Shin disguised regular fiat currency payments on his payments platform company, Chai Corp., making it appear as if the transactions were processed using Terra cryptocurrency.
  • Shin attracted investments of around 122 billion Korean won (US$91 million) into Chai Corp. from venture capitalists, the prosecutors said.
  • Shin’s legal representatives rejected the allegations in a statement emailed to Forkast, saying they are ready to clear up any misunderstandings the prosecution may have.
  • “Shin Hyun-seung resigned from Terra and Luna two years before the collapse and has no connection to the collapse,” the statement said, adding he came back to Korea to cooperate with the investigation and the court has twice rejected an arrest warrant for Shin on the grounds of insufficient evidence. 
  • The charge that Chai falsely promoted the use of Terra blockchain in its payment system is untrue,” the statement said.
  • Prosecutors said there is ample evidence that Shin and Terraform Labs were aware that Terra cryptocurrencies could not be used as real payments. Shin’s lawyers said financial authorities did not have a fixed position on the issue at the time of Terra’s launch.
  • Terra co-founder and leader Kwon is wanted in both South Korea and the U.S. and both countries want to extradite him.  
  • Prosecutors in Seoul said South Korean financial authorities are in talks with U.S. authorities over the matter.

See related article: Terraform Labs Kwon to get Montenegro court hearing May 11 on passport forgery charges