Can Terra-Luna victims seek compensation?

Failed crypto mogul Do Kwon is taken to a court in Montenegro in this photo taken in May 2023, two months after he was arrested there. Montenegro will extradite Kwon to Korea, possibly on the weekend, after he was wanted by both Korea and the United States for cryptocurrency fraud connected to his stablecoin Terra and sister token Luna. AFP-Yonhap

The planned extradition of disgraced crypto tycoon Do Kwon to Korea after being arrested in Montenegro is leading to a long-awaited question: Can victims seek compensation from him for their losses?

The question comes as Kwon and Terraform Labs, a crypto firm that he co-founded in 2018, are connected with a 2022 cryptocurrency fraud case estimated to total $40 billion, which devastated retail investors in Korea, the United States and other countries.

Kwon allegedly orchestrated the fraud via his algorithmic stablecoin Terra and its sister token Luna, which crashed and shook global cryptocurrency markets in 2022.

Kwon had been on the run after the Terra-Luna crash but was then arrested in Montenegro in 2023.

He is expected to return to Korea this weekend.

Under the circumstances, legal and financial sources say whether the victims in Korea can retrieve their losses is not yet clear.

“Heavy punishment is unlikely in Korea and that is why the Korean investors hit by the Terra-Luna collapse have been voicing their preference for Kwon’s extradition to the U.S. over Korea,” said Joo Hyun-cheol, a lawyer at Seoul-based law firm EJE Law. “He even may be found not guilty under the most extreme circumstances.”

He noted that Korea, unlike the U.S., does not recognize crypto assets as proper securities and that Seoul’s Capital Markets Act may be not applicable to the charges against Kwon.

“The financial and legal authorities, for the past two years, had sufficient time to come up with a logic and also revise relevant regulations to protect crypto asset investors. But they apparently have not done so,” Joo said.

Lee Jung-yeop, the president of LAWJIBSA and chairman of the Blockchain Law Society, voiced a similar view.

“Kwon’s liability for fraud must be proven in court for the victims to receive compensation, and proving it will be tricky under current financial regulations,” Lee said.

Even if Kwon is found guilty, the seizure of assets belonging to Terraform Labs and Kwon can be tricky, too, because Terraform Labs filed for Chapter 11 bankruptcy protection in the U.S., according to the sources.