South Korean authorities launched an investigation into the LUNA crash, Do Kwon was charged with multiple charges, and cryptocurrencies may face stricter regulation

After the Terra ecosystem collapsed, Terraform Labs co-founder Do Kwon continues to incur more legal troubles. South Korean police are taking action to freeze assets associated with the nonprofit Luna Foundation Guard (LFG), and the Seoul Metropolitan Police Department has asked multiple exchanges to prevent LFG from withdrawing any company funds. South Korean authorities are cracking down, and the crypto market faces stricter regulation.

Do Kwon was summoned by the National Assembly's Political Affairs Committee for a parliamentary hearing on the issue, and South Korea's National Tax Authority fined him $78 million (about 100 billion won) for tax evasion.

Terraform Labs first came to the attention of tax authorities in June last year for allegedly evading corporate and income taxes. An investigation into Terraform Labs and its various subsidiaries revealed that the company was registered in the Virgin Islands and Singapore.

Although both subsidiaries are registered abroad, the “place of actual management” is Korea itself. Under Korea’s corporate tax law, foreign-registered companies are treated as domestic companies if the decision-making process and operations are conducted in Korea.

Last October, Terra 's Virgin Islands subsidiary was slapped with a $3.6 million income tax penalty and a $34.7 million corporate tax penalty.

Information obtained from the South Korean Supreme Court Registry shows that Do Kwon successfully dissolved two Korean branches. Both the Busan headquarters and the Seoul office agreed to dissolve at the shareholders' meeting on April 30, and actions were taken on May 4 and May 6, respectively. The timing of these decisions has aroused suspicion within the crypto community as they may be related to the Terra and UST stablecoin depegging incidents that occurred in the early hours of May 10.

Do Kwon denied allegations that he had failed to meet his tax obligations in South Korea and said that the closure of operations in South Korea just days before TerraUSD ’s depegment from the U.S. dollar was “pure coincidence.”

"I have been in Singapore since December - it was my personal decision and was planned a long time ago. Closing a company takes time and the timing is purely coincidental," Do Kwon said on Twitter.

“We owe no taxes in Korea,” he said. “The National Tax Service conducted a tax investigation on all the large crypto companies operating in Korea and applied Korean tax laws to the foreign parent companies, and as a result, all the companies paid taxes — we paid all of them.”

South Korean police are taking action to freeze assets associated with the Luna Foundation Guard (LFG) following the collapse of the TerraUSD (UST) stablecoin this month, with the Seoul Metropolitan Police Department asking several exchanges to block LFG from withdrawing any company funds, South Korean media outlet KBS reported on Monday.

However, according to KBS, these exchanges are not subject to the law, meaning it is unclear whether these actions will be carried out. Police said they intervened after discovering clues of misappropriation of funds within LFG.

In addition, Terra and Luna victims recently filed a lawsuit with South Korean prosecutors over investment fraud allegations, claiming that they suffered huge losses because CEO Do Kwon did not inform them of the dangers of virtual currencies. The police's request to freeze funds is separate from the investment fraud complaint case, and the police have not yet disclosed how they will conduct the investigation.

South Korea's Joint Investigation Team for Financial and Securities Crimes has officially launched an investigation into Terra, including Terra co-founder Do Kwon and other core team members. The South Korean Joint Investigation Team for Financial and Securities Crimes is composed of members from different financial regulatory agencies and aims to prosecute securities fraud and unfair trading. Terra is the first case investigation launched after the reorganization of the investigation team.

A representative of the law firm LKB & Partners said, "Luna and Terra were designed and issued to attract investors, but the failure to properly inform them of the defects and the unlimited expansion of Luna's issuance amounted to deceiving investors."

South Korean regulators have released a new report with a series of recommendations on how to properly regulate the country’s crypto industry. The report recommends that the domestic crypto industry adopt a licensing system for exchanges and token issuers to protect investors.

The report, released to the National Assembly by the Financial Services Commission (FSC), also called for new regulations to reduce insider trading, pump and dump schemes, and wash trading. The new regulations will be stricter and penalties for non-compliance will be harsher than the Capital Markets Act, which the domestic crypto industry currently abides by.

The report, “Comparative Analysis of Virtual Property Industry Bills”, suggests establishing a licensing system for token issuers, with varying degrees of licenses being issued depending on the risks involved.

One proposed regulation would force token issuers to submit a white paper about their project to the FSC, including details about company executives, how it plans to use funds raised through ICOs, and the risks associated with the project. Updates to the white paper would have to be submitted at least seven days before the proposed changes take effect.

Even companies headquartered abroad must abide by the white paper rules if they want their tokens to be traded on Korean exchanges.

South Korean cryptocurrency exchanges Bithumb and Upbit have issued investment warnings against Litecoin today following updates that allow transactions to be sent confidentially.

Bithumb said in a report on Monday that activating Mimblewimble brings a “confidential transactions” feature to the Litecoin blockchain, enabling users to send coins while hiding transaction information. Upbit issued a similar warning today.

The two exchanges cited South Korea’s Specified Financial Transaction Information Reporting and Use Act, which requires cryptocurrency exchanges to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. It is reported that South Korean exchanges usually delist the warned tokens after issuing such warnings. However, as of press time, crypto exchanges have not hinted at the possibility of delisting the cryptocurrency.

Bithumb noted: “In order to protect our users and investors, ‘delisting digital assets that violate the regulations or guidelines of government and financial regulatory authorities’ has also been included in Bithumb’s policy. Based on ‘compliance with relevant regulations and laws’ and ‘internal policies to protect investors’, Bithumb has decided to designate the above assets as investment warning assets and will make the final decision on whether to terminate trading support.”