South Korean prosecutors are considering whether to view the troubled cryptocurrency luna as a security, a move which could put the coin developers and those complicit under scrutiny for not only fraud, but also for violations of the Capital Markets Act.

The Seoul Southern District Prosecutors Office’s Financial and Securities Crime Joint Investigation Team has met with crypto experts and financial authorities to review if luna can be categorized as a security, the prosecution said Tuesday. A security, quintessentially, is a certificate or other financial instrument with monetary value and can be traded. Stocks and debt securities, such as bonds and debentures are prime examples of a security.

Onlookers expect the prosecutors’ upcoming decision would impact policymakers' work in laying out the legal framework around crypto here, which remains largely unclear.

While some say crypto is like a security because they can be issued like stocks, others claim that their decentralized characteristic distances it from old rules or makes it a “commodity” rather than a security.

The announcement comes as the US Securities and Exchange Commission has been expanding its scope of investigations into luna and terraUSD developer Terraform Labs. The latest investigations are centered around the Mirror Protocol, a decentralized finance platform designed by Terraform Labs to track Netflix and Tesla stock prices and sell their “mirrored assets” in terraUSD.

Terraform Labs' Mirror Protocol platform was not registered in the US and the SEC is currently investigating whether the company violated consumer protection laws in marketing the troubled coins in the country.

Korean prosecutors are currently widening their probe into Terraform Labs and its co-founders, Do Kwon and Daniel Shin, after 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 to lose large sums of their money in the first wave of the shock.

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

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

(mkjung@heraldcorp.com)