South Korean prosecutors raided Chai Corporation, the local payments technology company founded by Terraform Labs Pte. Ltd. cofounder Daniel Shin, or Shin Hyun-seung, on Tuesday, South Korea’s Seoul Southern District Prosecutors’ Office confirmed with Forkast.
Prosecutors are investigating Shin and Chai under allegations that the company used customers’ personal information in launching Chai’s Terra payment services without consent.
Chai had partnered with Terraform Labs in 2019 to incorporate Terra’s Korean won-pegged stablecoin KRT into its payment app. Chai’s KRT function has been discontinued since March 2022, according to local media reports citing Chai.
Shin claims to have cut ties with Terraform Labs and chief executive officer (CEO) Do Kwon in 2020, when he moved on to establish Chai Corporation, in which Shin is currently serving as CEO.
“Chai has been operating independently from Terra since Q1 2020, when our marketing partnership was suspended. Since then, it has an independent team and with independent operating governance,” a Chai spokesperson told Forkast via email. “Daniel will fully cooperate with the ongoing investigation to clarify the misunderstandings and to resolve such speculations.”
Prosecutors said on Monday that they have summoned Shin as a suspect to investigate the Chai founder and CEO on breach of duty and violations of the capital markets law for unfair trade practices.
On the latter charge, prosecutors point to the accusation that Shin allegedly stored Luna tokens which had been pre-issued without notifying regular investors, and then sold off the tokens at a high point, earning 140 billion Korean won, or about US$106 million.
“It’s a problem with pre-mining. It’s because they did not make proper disclosure in issuing the tokens,” said Hwang Suk-jin, professor of information security at Seoul-based Dongguk University, a regular speaker at South Korea’s National Assembly on cryptocurrency policy. “[For instance], if [investors] thought a thousand tokens have been issued and in fact 10,000 have been issued, investors inevitably suffer losses.”
South Korean authorities have been investigating since May the collapse of Terra-LUNA, which caused losses to hundreds of thousands of investors worldwide. While authorities have issued an arrest warrant and have Interpol’s help in tracking Do Kwon, the whereabouts of the Terra CEO are still unknown.
In September, South Korean prosecutors reached a decision to view Luna cryptocurrency as an investment agreement security, which led to issuing Kwon’s arrest warrant based on charges of violating the local Capital Markets Act, considering Terraform Labs an unlicensed provider of securities.