Unchained - How Will the Legal Case Against Do Kwon Play Out in South Korea? - Ep. 401

Episode Date: September 27, 2022

Zack Guzman, journalist and Coinage host, and Jongbaek Park, partner specializing in blockchain and crypto assets at Bae, Kim & Lee, discuss how the case in South Korea against Do Kwon and TerraForm Labs will likely go, whether Do Kwon is on the run, and what his sentence could be.    Show highlights: Jongbaek’s and Zack’s disclosures regarding Terra how big the Terra phenomenon was in South Korea and how Do Kwon was perceived in the country whether Do Kwon posed any conditions for his interview with Zack what Do Kwon is being charged with the colliding opinions on which tokens are considered securities whether the collapse of Terra had any negative impact on the South Korean President’s image whether Do Kwon feels like a charge for violating the capital markets law is unfair whether Do Kwon is “on the run,” despite his denials how the potential revocation of Kwon’s passport could make him go back to Korea whether Terra was a failure or a fraud, and how prosecutors are looking into it whether Terra was centralized  the chance of prosecutors going after other people from Terraform Labs and the probability of the entity’s assets being frozen how much jail time Kwon could be facing and whether he is prepared to go to prison     Thank you to our sponsors! Crypto.com a16z Chainalysis   Guests:   Jongbaek Zack: Twitter   Episode Links Previous Coverage of Unchained on Do Kwon and Terra: Do Kwon Is Backing UST With Bitcoin – And Here’s What Else He Is Building The Legal and Regulatory Fallout From Terra’s Collapse: Who Will Pay? The Chopping Block: Does the New Terra Have Any Chance? Hester Peirce’s Former Counsel on Terra 2.0, XRP and a Bitcoin Spot ETF Why Terra Collapsed and Whether an Algo Stablecoin Can Ever Succeed   SEC Actions Against Terra SEC Investigating UST Stablecoin Blowup in Fresh Threat to Terra Terraform Labs Loses US Appeal over SEC Subpoena Allegations against Do Kwon Seoul Police Probe Allegation of Embezzlement by Terraform Staff South Korea Launches Investigation into Company Behind Luna Crypto Crash Class action against Do Kwon Was LUNA a Security? Korean prosecutors are looking into Terra Do Kwon  Red Notice “Not on the run” Kwon’s Passport Stablecoin Regulation Stablecoin Draft Bill Yellen cites UST stablecoin risk after it loses its dollar peg   Haseeb Qureshi’s summary of the Terra collapse: Zack’s Interview with Kwon Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey all, I'm sure you've been following the dramatic news about Doe Kwan. The recent arrest warrant, as South Korean Court released, the revelation that he is not in Singapore, which until recently was the place he called home. And finally, just before the publication of this episode, Interpol's issuance of a red notice to arrest Do Kwan, which went out to law enforcement worldwide. After the arrest warrant was issued, Kwan published a tweet thread that began, quote, Dear CT, meaning crypto-twitter. will tell you what I am doing and where I am if, one, we are friends, two, we have plans to meet. Three, we are involved in a GPS-based web three game. Otherwise, you have no business knowing my

GPS coordinates. In order to learn more about the charges Kwan is facing and what he himself might be thinking, I invited South Korean crypto lawyer Zhang Beck Park and Zach Guzman, the only person who has interviewed Kwan since the collapse of Tara, about what could happen to the Korean founder. As we disclose right up front, both of these guests have some conflicts of interest. However, it's challenging to find a South Korean crypto lawyer with zero ties to Tara Luna, and I was satisfied that Zhang Beck's financial relationship with Tara ended a while back, and that he had the requisite knowledge to educate my largely Western audience. Zach's company has investment from Terraform Labs, but as you'll hear, he was able to give us

insight into Doe's recent thinking around the kind of charges he faces, that I found valuable and, frankly, newsworthy. After we wrapped, Zhang Beck mentioned a nuance that we hadn't discussed during the show. He said that in Korea, this is a criminal case, and prosecutors are asserting that Luna is a security, but that is not coming from the Korean Financial Services Commission or FSC, which is the equivalent of the U.S. Securities and Exchange Commission. So there's no precedent for Doe's case,

which means that this could actually create a guide for securities law in Korea, Zhang Bek also noted that some observers in Korea are speculating that the FSC gave the prosecutors some references regarding how Tara might fit securities requirements, but he said that is not confirmed. Zhang Beck is concerned that if the court convicts Kwan on these criminal charges, but it doesn't do a deep securities analysis, it could chill crypto innovation in Korea. Last note, at the very end of the show, as we are wrapping up, and as I was asking Zhang Beck how people can learn more about him and his work, his audio recording stopped, but I didn't realize it at the time. Since you won't hear his response, you can check out the link in the show notes to learn more

about his background. Without further ado, here is my interview with Zhang Beck and Zach. Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago and as a senior editor Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the September 27th, 2022 episode of Unchained. Every other week, Unchained hosts the shopping block where Crypto Insiders Haseeb Qureshi, Tom Schmidt, Robert Leshner, and Tarun Chitra shop it up about the latest news in digital assets. Get the latest episode on YouTube and all podcast platforms.

Chainalysis demystifies cryptocurrency by providing industry-leading compliance, market intelligence and investigation support for all crypto assets for organizations like Gemini, crypto.com, and blockfi. Maximize your potential with the leading blockchain data platform by visiting chainalysis.com slash unchained. Whether you're crypto-curious or a C-suite decision maker, you have to check out Web3 with A16Z, the chart-topping technology podcast about the future of the next internet. Listen to Web3 with A16Z on Apple Podcasts, Spotify, or wherever you get your podcasts.

With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Today's topic is Tara, Doquan, and the legal fallout in Korea. Here to discuss are Zach Guzman, journalist and coinage host, and Zhang Beck Park. Partner, specializing in blockchain and crypto assets at Bay, Kim and Lee. Welcome, Zach and Zhang Beck. Thanks for having me.

Thank you for having me. So we should just start with some disclosures up front because you both have connections to Terra. So, Zhang Buck, can you briefly explain your connection to Terra? Yeah, we advise on some legal aspects of Terra project in early stage before they adopted the new algorithm. Okay, but your financial relationship with the company does not persist to this day. Yeah, I don't have any financial relationship as of now. Okay, and Zach, you also have a conflict. Can you explain?

Yeah, as we disclosed before, Truseless Media, the parent company that started kicked off, that is a Web3 media incubator. The Starteroenage has Terraform as one of our investors, among many. And that is a disclosure we made before we started to dig into what happened with Tara. So despite these conflicts, I invited Zhang Beck, since as you mentioned, you no longer have that financial relationship, but you are intimately familiar with the case and the Korean legal scene. And Zach, you're here since you are the only person, I believe, to have done an interview with Doquan since the collapse of Tara. So listeners of this podcast have heard about the algorithmic stable coin Tara, whose implosion,

along with that of its sister coin Luna, wiped out $60 billion of the crypto markets in May, taking down a number of other entities, such as 3-0 Capital, Celsius and Joyager, along with them. And in the last week, a South Korean court issued an arrest warrant for Tara's leader, Joe Kwan. And Kwan, who had been living in Singapore, may no longer be there. But before we get into all these details about the arrest, I wanted to start by filling in the back. of the Terra Luna story in South Korea. So, Zhang Bek, describe for us how Tara rose and fell in Korea. How big of a phenomenon was it with everyday Koreans?

As you know, Terra came up as a very subtly, as one of the major stable coins in the global market. It's the same with Korean market and the Korean people or investors. And then the same thing applied to their collapse. Abruptly, it came to Korean people and regulators and the country. So when the collapse broke out, my people and the regulators were shocked about the southern thing. And then since then, Korean community and society were wondering how the Korean investigators or prosecutors will react to that phenomenon because there was some very big issues about their legal nature

and the many people who were damaged from the collapse of the terror and Luna. And then there was some big discussion about whether it is securities or not, or it could be subject to some criminal acts or criminal behaviors. But finally, the latest news in Korea was that prostitators' office issued arrest, read against Do and some other people involved. On the reason that Pera and Luna could be securities, especially investment contract security, and it could be followed in some category of criminal behaviors like fraud or some fundraising without permission.

Especially with the charge of infringing capital market act, which provides the securities definition and then some penalties regarding infringing of such a security's registration statement obligation. So the reason why the prosecutor office applied Capital Market Act based on Luna could be investment contract securities is not known. Because the prosecutor offers the prosecutor's office keep the reasoning very secretly as of now. So we do not know the details of their reasoning. Just the full description of what happened in Korea very briefly. Okay. And a couple of questions before we dive into the details on that.

How big of a phenomenon was Terraluna in Korea? I read that 280,000 people in Korea invested in it, which based on my calculations, it's like a half percent of the entire population. So was it seen as like something very popular than a lot of people were talking about? or what was the perception of it? And also of Kwan himself. What was the perception of him? Yeah.

Given the percentage of the population who invested into Luna, the phenomenon is regarded bigger than the percentage of the investor. The reasons are that first, Dogen and then other relevant people are Koreans. And then there are some, Even though with small numbers, many investors are quite invested big money out of their whole assets into this project. So it could give some governmental authorities a little bit shock.

Otherwise, no, no, shock. And the third thing is that he is not in Korea as of now. So it makes people. more concerned about what will happen, and then it gives them some devious feelings about concerned people. Yeah, those are the reasons why Korean society feel bigger than the portion of investment.

Yeah, and actually, one last question about Doquan, before the collapse, was he seen in Korea as like a big crypto star because I believe Tara was, the most popular crypto project that had come out of Korea. So until that moment, was he seen as like a success story for the country? Yeah, actually, the ordinary citizens did not know him well before this phenomenon. But for communities or some investors or some experts in this space,

there are some dividing opinions and feelings towards him. As is the case, I think, with the global community as well. Some people have a very good feeling about him. He is a kind of a leader in this community, and then he was regarded as a very big figure to lead this stable coin and further other crypto space. On the other hand, he was regarded quite not sensible people.

He predicted too much, and he could be arrogant. So there are two colliding opinions about him. So not so different from the rest of the world, actually. So Zach, you interviewed Doe, even after he knew that, you know, there was going to be this investigation. And I was curious, did he place any conditions on your interview with him? And if so, what were they? And what do you think they indicated in terms of his concerns about his potential legal issues? No, there weren't any conditions on the interview. And I was actually kind of surprised. And I'm sure John Beck would probably agree from a legal

standpoint if you are facing an investigation. I think we all know, and Laura, you've been doing this for a long time. Generally, people don't want to speak about anything if there is an ongoing investigation because you kind of corner yourself and you might give up any sort of defense. And we've seen innocent people face that issue before. And lawyers just say it's problematic to ever go on the record and talk about things because you limit what you might be able to say or use as a defense in the court of law. But when it comes to the court of public opinion, to your point, you hadn't said anything for months after the crash. And if there was another personal disclosure to add, aside from the fact that, you know,

trustless media has Terraform as one of our investors among many that kicked off coinage. The other one is personally I lost a lot of money in Terra as well. So I was curious about this because, you know, I along with a lot of people saw the Terra project earlier and as it rose and, you know, people began to believe in it, we're excited by the prospect of an algorithmic stable coin or what could mean to have crypto finally stand alone without the need of a centralized or dollar-backed stable coin out there. So that was part of the Terra mission and why I think, to your point, why a lot of people were excited by Terra and why a lot of people were sucked into the mission that Doe would talk about with a lot of energy on stage to bring more eyeballs into the terror community. But no, there were no conditions. And we made it a point.

I said, look, Doe, if we're going to fly all the way to Singapore, we're going to ask some tough questions. We want the answers. I personally want the answers because I don't know what happened here. And nobody really knows what happened here. And so, yeah, it's an ongoing thing where I think, you know, even what we could ask in the interview, I'm not a jury. I don't have subpoena power. So as much as we wanted to get out of it, you know, again, we did our best to get those answers and he hasn't spoken since the coinage interview. but there are still a lot of unanswered.

You have sent a few choice tweets, which we will talk about. But, okay, so let's circle back to what Zhang Beck mentioned early on about just what the charges were. So you were saying that the way the charges are, or maybe, you know, hopefully I understood you correctly, that essentially the prosecutors are saying that Tara maybe was a security. Is that what you said earlier? So can you just describe a little bit more, like, what does the law say and what are they charging Doe with? We, Korea, have a Capital Market Act,

providing what are securities, and then what kind of securities there are. Among others, some tokens are being questioned as to whether they could be regarded the securities on investment contract securities. So we think that prosecutors' office could regard this RUNA as investment contract securities. So we have some details requirements for that type of securities. Anyway, differently from other user cases,

very high-profile criminal cases, on what basis, Prosecutor appears charges against some people or some corporations, they tend to some core reasoning for that. But for this case, they are very reserved to disclose the reasoning why they think Runa could be regarded as investment contract securities. So we also are very wondering about their reasoning at the moment. Under the Capital Market Act, if you issue and the fabric offering such securities to the public, you are obliged to file the registration statement with the Korean FSC, which is a financial regulator. So if you infringe the debt provision, you are subject to some criminal fanaties. So, prosecutors, I think, they applied that penalty to this RUNA project, I think.

And further to that, they announced another charge as well. The other one is fraud. They think that he made some fraudulent activities towards some investors with the initial investors who bought their tokens. from the protocol initially. And the last charge is fundraising without permission. We have some act regarding fundraising without some approval permission,

especially when you fundraise some amount of money from several people, giving them some commitment to give them some fixed interest or more than some amount of interest or in whatever names, some profits, is subject to such act. Also, it has got some criminal penalties. Oh, wow.

Okay, so this really ranges the gimmitt. One quick question. So earlier when you said that the legal community is wondering what the prosecutor's reason is for saying that Luna is a security, you may not, I don't know if you're aware, but in the U.S. for a few years now, there's been a big question here over when crypto assets are securities versus when they're not.

And the current SEC chair says he thinks the vast majority of crypto assets are securities. You know, his predecessor kind of had a similar view, not as severe. There's a lot of other regulators and lawmakers that disagree with that. So in Korea, is it the same where there's a lot of disagreement amongst regulators and lawmakers over how many crypto assets are securities? Yeah, there are colliding opinions about that. But as I already mentioned, we have the express provisions on what is investment contract securities.

The test is quite similar to how we trust under the U.S. laws, right? But regarding what tokens could be subject. such security is quite controversial. So with all current crypto exchanges, they reviewed their listed tokens. If their listed tokens are secured or not, they collect some legal opinions regarding whether their listed tokens are security or not, which means that they do not list any security token at the moment.

So some tokens, which is quite controversially debated as to the security character is quite few in Korea. But in other sense, many people or some businesses want to have some clear regulation on what is securities or not, what token is securities or not. So quite recently, our FSC announced their guideline of what is investment contract securities, which is quite helpful to understand what is Korean regulators' position on it. So the detailed requirements are quite similar to high test as well. The initiator for that publication of a guideline

is actually not related to blockchain tokens, but to other fragmented investment schemes, which invested in some music copyrighted work. But the reasoning is almost similar to the tokens, securities. What's been happening here in the U.S. is that recently now, the SEC has done a few enforcement actions where they, asserted that certain tokens were securities without giving the reason for that. And is that the same that's happening here in Luna? Because lawyers here are saying, oh, this is the SEC's way of

establishing jurisdiction without having to justify how they have the jurisdiction. So is there a sense also in Korea that the Terra Luna debacle is being used basically for the financial authority there to assert that certain tokens are securities without having to justify their position? So far, Korean financial regulators have not expressed any public statement or positions towards whether it is securities or not. Well, can I jump in and ask a follow-up on that to you? Because it's interesting, too, because your new president also ran on a pro-crypto stance pre-lunicraft. And I feel like there was a lot of pride in the Luna project from what I could gather on the outside looking in.

As Laura said, it was the most popular crypto project in Korea. And if you have a president who's pro-crypto and runs on that platform, gets elected and then sees that project then collapse in a pretty shocking way, I mean, has that impacted how the president even looks at crypto and how has that also shifted, kind of how regulators are now putting more pressure. That's a good question. So I also wanted to explain. and the new governments added towards crypto space. Actually, from the election phase, new administration expressed their very friendly attitude towards crypto and relating businesses. So from the presidential campaign stage,

they expressed, we will support ICO, which was forbidden during the previous administration. The way to allow ICO was IEO, which means that exchange offering. And the other thing is the new government to have some strong willingness to foster NFT or other type of crypto businesses. But regarding if they go to STO on securities tokens,

they also want a very cautious attitude because if they allow some security tokens, they realize that the Capital Market Act needs to be amended, which takes a long time. So the current position, about the STO or security tokens is that we have to confess that it will take a little long for us to amend such a capital market act allowing some security tokens or institutionalizing tokens. In the meantime, they will publish some STO guideline, hopefully by end of this year.

So they are preparing some contents for that. The other thing they announced is that before the amendment of the Capital Market Act, they will actively implement a sandbox project which the business think that their project is a very innovative, adopting token economy or some other valuable businesses giving very positive influence over Korean economy. So that's the core policy. of the new registration, but regarding securities type tokens, they are also very cautious attitude as of now. Yeah, actually, what you just mentioned there, it sounds similar to something that one of

the SEC commissioners, Hester Purse, who's very pro-crypto has proposed here. She calls it the token safe harbor, but it sounds similar. I wanted to ask you now about the second charge that you mentioned about the fraud. So what were some of, did the prosecutors give any examples of the statements that they were looking at in terms of, you know, what they felt constituted the fraud? Of course, all charges is not definitely will be accepted by the court judgment. Yeah, it's not. But anyway, according to their probable arguments or reasoning, I think with some, tokens which was sold from the protocol at initial stage, not sold through the exchanges or others, right?

They had some... Like before the network launched, do you mean? Like in the pre-sale or something? Yeah, yeah. Because I guess that their reasoning could contain that the issue or the seller did not disclose all relevant information properly to some proper level, which is regarded reasonable. So it's a kind of misrepresentation, I think. I guess that is there are the reasoning for such a fraudulent behavior charge. Okay. And Zach, I know you've done a ton of reporting on

both Doe and Terraform Labs. And I wondered if you saw any potential either actions or statements by any of those actors that you thought investigators might be looking at or that might trip up against some of these charges that Jean-Beck mentioned. Yeah, I mean, that's to me what's pretty interesting here, right? When we talk about failure versus fraud and that's kind of what the Quenage Media interview with Doe kind of gets at is, you know, if there were those issues before, it's kind of interesting to see prosecutors bring them, you know, if those were the issues at launch,

why they bring them now post crash and why the president goes from being pro-cry to not bury crypto-friendly after the crash, it's almost like the optics are leading kind of what's happening in terms of the investigation. Obviously, ex post facto, I'm sure prosecutors might not be giving it that much attention, but now it's a huge thing. And a lot of people, including myself, lost a lot of money in it. So it changes kind of the way you look at it. When we were chatting with Doe in Singapore about some of the prospective charges. Obviously, that interview was pre the announcement around the charges, but obviously in the months after the crash, there was this investigation happening. So he was well aware of what could happen. And he stressed, you know,

not in the interview, but it was off camera as we were leaving, kind of the Capital Markets Act charges that could be brought and how he felt that those would be kind of a catch-all. And I appreciate the questions you're asking John Beck, because, you know, a lot of times I think Americans watching this all play out might assume laws there are the same as the laws here. And obviously, every crypto founder is dealing with regulations across borders and having to deal with regulators in every country. But he did kind of stress the point that, you know, capital markets is kind of a catch-all in his words. Obviously, I'm not a lawyer and don't know anything about Korean law. But he stressed to us that it was kind of a different charge that might be one that he wasn't necessarily prepared to face

at the time to go back to Korea and talk about because, as it sounds like we're hearing now, it's a bit of a wishy-washy catch-all thing depending on how prosecutors want to go. But that was one thing that was different than I guess, you know, some of the other charges. And I appreciate the line of questioning here because John Beck, it sounds like the Capital Markets Act is a bit of a catch-all for anything that could be related to disclosures around some of these things or the way that regulators view them as securities, which to Laura's point is also a bit of a, a mess here in the U.S. when it comes to what is and what is not. Wait, I'm sorry, Zach. Did you just say that Doquan said that if he was charged with a violation of the Capital Markets Act that he would not go back to, you said he was not prepared to go back to Korea to face that. So what did those words mean?

When we asked, and you know, the exact words in our interview was, look, how are you prepared to face some of the charges that could come from this? And his response to that was, look, when you're dealing with due process, it's not a question of whether or not you're prepared to face them. It's what you will provide to the prosecutors. And he said that he wanted to be as honest and transparent as possible. In the moment since that interview, you know, people could look at that and say, how honest and transparent is it now if you have prosecutors saying you're on the run and you're on answering our questions? That becomes a question of how honest and transparent is that. But no, the capital markets thing was a stress point around

whether or not it was an insight, and the interview was an insight into how Doe was preparing to face some of this as his defense strategies were kind of being mounted. And it was a question of, okay, how are prosecutors going to play this on the offensive? That might dictate how a man plays it on the defensive. And Capital Markets was one charge that he specifically said is kind of in the camp of, all right, that's up to kind of the prosecutors. And it's no different, I think, than here where, you know, you've got a lot of people dealing with NFTs. who are facing charges now around insider trading in that case with OpenC, and it's a question of, well, that's not really defined if an NFT is a security. So I don't know how prosecutors are going to play that one either. And so that was one distinct from fraud and the other charges that Zhang Bex

kind of bringing up that Doe mentioned in the interview off camera that Capital Markets controls charges would be distinct in his eyes as far as ones that he felt less comfortable going back to Korea. And what is that Capital Markets controls? I think the charges tied to the Capital Markets Act that Jungbeck's describing. And Jungbeck, I'd be curious to kind of know a little bit more about that as well. I mean, it sounded like you're describing the Capital Markets Act as kind of a catch-off for securities issues. But, I mean, I was kind of curious as a lawyer who knows the law better than probably we do,

were you surprised to kind of see the way that that was one of the charges they listed there or what was kind of the legal reaction to see? Before we go into that question, Zach, I just want to make sure I fully understand what you were saying. So are you saying that Doe was saying if he was charged with a violation of the Capital Markets Act that he would not go back to Korea because he basically felt that that wasn't an unjustified charge? Is that what you were saying there? Yeah, he was saying that, you know, obviously this interview happened before the charges came out. So we were just talking prospectively about where do you see this investigation going and what are the potential things that could happen?

And one of the things that he raised was the Capital Markets Act is a bit of a catch-all right now, kind of the way that the U.S. still hasn't figured out what crypto is. Is it a security? Is it not a security? That was one of the charges that he was saying, I don't know what's going to happen on that front. And so that's one, if that was the only charge that they had, that he was, I think, reluctant to kind of the idea of going back to Korea because, obviously, if you don't know what the charges entail, it becomes a little difficult. But this was obviously weeks before everything else that's happened since. So I wouldn't want to extrapolate too much from, you know, a discussion we had a month ago before, you know, this warrant was issued and everything else. It's a bit dated now.

But it was just, you know, again, our interview was a discussion into how do you see this playing out in the fraud versus failure, which I think is the most fascinating thing here because now you have all of a sudden, basically it wasn't an issue when it was working fine and no one had lost money. But now you have the project collapsed and a lot of people, including myself, lost money. And now there's the attention on it and trying to figure it out where there wasn't that attention before and even the president was pro-crypto. So you can see how quickly these change depend on, I guess, the event of what happened. Well, we're going to talk a little bit more about, you know, the legal process. But first, a quick word from the sponsors who make this show

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Listen to Web 3 with A16Z today on Apple Podcasts, Spotify, or wherever you get your podcasts. Back to my conversation with Zach and John Beck. As we just mentioned, it seems that, you know, when Doe was anticipating that perhaps he might be charged with the violation of the Capital Markets Act, that he had kind of indicated he may not be willing to go back to Korea to face that kind of charge. It seems that maybe the reason for that, as Zach has articulated, is that he felt that the government didn't really have a view necessarily or a set view on the securities law there and how it applies to crypto, but maybe it was looking to set some kind of precedent. Maybe that's why he

wasn't willing. But, you know, after the court issued the arrest warrant, Singaporean police reported that Doquan is actually not in Singapore, which, Zach, I know you interviewed him there, and he has been living there, you know, in recent times. However, after this news broke, Kwan then tweeted that he was not on the run. So, Zhang Peck, I was curious, how did this tweet play out in Korea? What is the perception of whether or not, Kwan actually is on the run? I'm not sure where he is and then whether he runs out or not. Korean legal community is also very keen on what arguments or what reasoning

prosecutors has taken for their charging. And then it is quite rare for Korean prosecutors to fly this imprimandment of capital market Act to tokens. And then as I said, Korean financial regulators FSC never expressed their official interpretation or some

their guidelines on what kind of token could be security or not. So I'm not sure whether he can come to Korea or not. But regardless of

whether he come to Korea or not, the process will take a long. I think, because there could be very strong argument and counter arguments regarding whether it is security or not, because we never had some precedence over it. And, Zach, were you surprised when you found out that Doe was no longer in Singapore, or based on your conversation, is that what you had expected, that if that was the charge, then he would try to avoid it? No, I mean, you know, we had a discussion around, you know, why he was in Singapore,

and I think that was something that came up in our interview, which anyone can watch at coinage. Media, you know, it's, it was, hey, it looks bad from the outside looking in. You know, you're not in the country where they're bringing these charges. You're a Korean national. You're not there anymore. Why are you in Singapore?

And then the crash happened, and a lot of people connected those dots to say, uh-oh, he's on the run even when he was going to Singapore, because why aren't you still in Korea? And if it crashed, why are you moving your company to Singapore? As he explained in the interview, that move was planned ahead of time and, you know, even before the crash, ironically, he was saying that he had more unwanted attention when things

were going well. And he had a baby with his wife and wanted to move somewhere a bit safer and kind of the celebrity status of Doquan in Korea was getting too high in his words. And he didn't necessarily feel as safe. So that moved to Singapore's plan pre-crash. So that was one thing that he clarified in the interview. As far as leaving from Singapore afterwards, yeah, I was a little surprised just given the fact that, you know, that was the whole reason he was in Singapore in the first place. But in the news coverage that happened since, perhaps that could have added additional, you know, spotlight on him being in Singapore. And maybe that was reason to then leave Singapore. Right, right after the arrest, Orrin is issued. Yeah, I mean, well, he was in,

he was in Singapore when Daniel Shin had his, actually, when we were there for the interview in Singapore between day one and day two, his co-founder of, you know, Tara Chai, Daniel Shin, His house was raided by Korean prosecutors. So all of this was playing out. And, you know, that was interesting because he was in Singapore then. And already you could make the case that he wasn't really in Korea for that part of the investigation. So those are two things, I guess, that are in the timeline that came up in our interview as far as why he was even in Singapore to begin with. So are you saying that you, it feels like you don't connect the fact that he's no longer in Singapore to the arrest warrant.

Do you or do you not? I mean, I don't know. I'm just watching this play out like everybody else is, right? You know, as far as that happened, I have no idea where Doe Kuan is right now. Nobody really does, I don't think. And it's odd to see him tweeting about him being, quote, not on the run when Korean prosecutors are saying he is on the run and no one really knows what's going on. But I don't know anything about his thoughts on that now because our interview was pre all of this.

But it didn't sound like at the time that there was any playbook around leaving Singapore because of anything changing. and I don't know, I was actually kind of surprised because I don't know what happens next, and John Beck probably knows better here. And I'd be curious to know how that allows anyone to travel if you revoke your passport and what happens there as far as kind of eventually getting some of the answers to the questions that we tried to get. But again, don't have subpoena power to deliver on. But yeah, I'm kind of shocked that all this is playing out in the way that it is in terms of a man on the run

slash not on the run, but also on the run, same time. Yeah, I mean, you know, we'll see where he actually is, but it seems like if that was his home for the most recent time and then suddenly now he's not in Singapore, it does seem like it's probably the case that he is, even though he denied it. You know, it's good that you brought up this issue around how the country wants to revoke his passport. John Beck, I was very curious. I have no idea.

I'm not a lawyer. I typically don't follow too many legal cases. So how common is that for prosecutors to want to revoke someone's passport? And how effective is that? Do you think that that move will result in Kwan having to return to Korea? Yeah. It's not commonly happening events, yeah, the education of a passport. And I think I'm not a criminal lawyer.

and not immigration lawyer. But I think the requirements for revoking passport will be quite strict. But even the importance of this case, I think prosecutors will try to fulfill such requirements. And I think they may fulfill these requirements. Once the passport is revoked, I think they will. have a door to Korea. And so I don't know how this works.

Through my coverage of crypto, I've been finding myself Googling often, you know, which countries have an extradition treaty with the U.S. or things like that. And so when someone simply just doesn't have a passport, does this issue of extraditions even come up? Or are there certain countries that Joe could simply go to even without a passport and not worry about being extradited to Korea or is it that without the passport pretty much that will result in him being sent back to Korea? How does that? You know, what are the options there, if any? So what are your two options? At first, being revoked? Or what I meant was more like

paths. So let's say that the passport is revoked. Then is there any possibility for Doe to still avoid going to Korea? Or will he pretty much without that have to go back to Korea? I think once passport is revoked, there wouldn't be no other way to not to return to Korea, I think. I remember that there was a very high-fri-file case regarding revocation of passport a few years ago with a different type of case. But with that case, I think through some embassy in some relevant country. Maybe she through that embassy in that

relevant country returned to Korea, I think. But as I told you, the requirements for revocation of passport, I think, are very strict. Oh, meaning that prosecutors may not be able to revoke it. Is that what you're saying? I'm not sure, but I think

they made some saying about the possibility of revocation. I think that they have some preparation for fulfilling that requirements, I guess. Okay. Okay. So if you were to place some percentage on the likelihood that it won't be revoked, what percentage would you give it?

It's not easy to give some percentage. More than 50%. If I were criminal lawyers, I could give you more exact number, but I'm not. So, yeah. Okay. Okay. And last thing I wanted to add here was that the prosecutors have asked Interpol to place Doe on the red list, which obviously would get the international community, policing community, galvanized to help bring Doe to justice in Korea. So again, seems like there is going to be a lot of pressure on him.

So now let's talk about the fraud versus failure issue. I know, at least in the crypto community, that a lot of people feel that Tara was more of a failure than a fraud. And I've heard people say things like fail. Failing at something is not a crime. But, Zhang Pek, I was curious, like, you know, how does Korean law look at situations like this? Does it seem like prosecutors are making that distinction or not? Yeah. As you pointed out, fraudulent criminal act is quite based on very usual criminal theory, right?

There is no other special legal argument about the tokens, right? So, for instance, we can have many, a small, long-pool token product, which involves some fraudulent components, right? But this is not the case, right? They made some white paper disclosing all their factors and some other risk. I think. And then they did not have some other express or wrongful behaviors beyond that white paper, I think. So in that sense, it seems not easy for prosecutors to cast some fraudulent behavior.

And then there is some tendency with the prosecutor appeals to apply some fraudulent doctrine towards some specific certain criminal behaviors or some longful behaviors, when they have a big volume of victimized people or they have a big amount of damages to some concerned people. I'm not sure such charges will be accepted by the court. And, Zach, you seem to view this as almost like a political move that when Tara was a success, people were fine with it in Korea,

but that once it failed, that then they kind of retroactively felt that it had violated certain things. But, you know, when it comes to these kinds of issues, there are a number of reports that sort of show that Tara may not have been, you know, a typical decentralized finance project and really was more centralized in your investigation of Tara. What was your takeaway? Did you feel that really it was Doe who, I mean, he did say in his, in the interview, with you that it really came down to him. And so do you think it was centralized in that fashion? Yeah, I think that seems to be a case across all crypto projects, right? It's like everything claims to be decentralized until you see what happens when problems arise. And then it comes

down to a very centralized team or a more limited team than I think people might realize to fix some of those issues when they arise. And that's not just a tariff-specific thing, but I think that's a thing that happens all across crypto. But yeah, I do think that, you know, that a lot of the key decisions eventually came down to Doan, that's something that came up in our interview as well, which he also said was kind of a negative. And the weird thing that's also going on as this all plays out in the courts is that you have Luna 2.0, which he relaunched, that doesn't have a stable coin attached to it, and that's freely trading on the market, almost as kind of like a token that's tied to, is this a fraud, is it not? Because people are still putting their money into Luna 2.0.

and I guess signifying that they trust that project now. So that's kind of an interesting thing that's playing out. This is so unique. As John Beck's kind of going through all these things, it's like there is no precedent in a lot of these cases as they're applied to crypto. So I feel like both sides are just as confused. But yeah, when it comes to that aspect of it, it is kind of, I suppose, uncharted waters for a lot of this.

And, you know, a lot of kind of the defense when a lot of this was happening. and kind of trying to fix it, I think everyone was tied to you, all right, what's Doe going to do and was looking at Doe's tweets in trying to, like, fix UST as it depagged. And I think that that is obviously a huge problem when you think about this was all supposed to be decentralized from the very beginning. And, you know, as Doe raises our interview as well, some of those mechanisms weren't ready for prime time or put in place that Terraform was trying to work on. Not that that's a defense at all for what went wrong, but that was kind of interesting in terms of what could have happened if more of these things worked. And that's just a reality of any project building in live time in Web 3, to Jungbeck's point, I mean, you can put up all those disclosures and try and rid yourself of maybe some of the issues if you say, look, these are the potential risks with our project. But if people don't understand those risks and if exchanges aren't really up front with those risks and are advertising algorithmically backed stable coins as if they're dollar back stable coins, who's at fault when it comes to the public being hurt by that when it does collapse? And I think that those are the questions right now.

That was pretty fascinating to ask Doe is, is this on you? Is it on the exchanges? Who's really to blame here? And there are class action lawsuits against some of those exchanges as well as Terraform for not really being up front with some of those risks. And I think that's really, I think we're precedent in this case and all the other ones around centralization are probably going to come from is who is on the hook when things don't go well and who's to blame, I guess.

All right. So I did want to also ask about some of these other associates that were charged. And Zhang Bek, what's your take on kind of who they are and what their involvement in terror is and how much it is that prosecutors will go after kind of the whole group of terraform or a larger group of terraform labs rather than just Doe himself? It really depends on the factual background. So all picture background are not known to the public, including me. So maybe there could be charged, there could be different charged persons depending on what charges are, fraud, fundraising without permission or impinging Capital Market Act. So maybe the subject activities could be different, I think. So the extent of the charged people could be different depending on the charge of people could be different depending on the charge themselves. For instance, in case of fraud, if you are collaborate with others,

regardless of how many people are involved, or there could be some core actors, right? And then infringing capital market act has very complicated requirements, right? As you might know, you should invest in some money or monetary value, and then invest in some joint enterprise, which is mainly conducted by other people. And then finally, they should get some right to receive some profit, rising pet debt, the joint enterprise.

So in that case, for certain people to be charged against infringing capital market act, you should act all those conforms together. For instance, if you are just involved in developing some algorithm, you are not subject to such a violation of capital market. And I was also curious, do you think there's a chance that prosecutors will, or the government will seize either Doe's or Terraform Labs, financial assets?

They have their own way of free. these assets in accordance some enforcement act, I think. But I'm not sure there are some real assets in Korea as of now. Some of it is Bitcoin as do revealed in the interview with Zach, which, you know, unless it's held on an exchange, I don't think they're going to be able to get that. And then one other thing I wanted to ask just nuts and bolts. So what are the minimum and maximum sentences for these charges that Doe is facing? Oh. Or maybe there's not a minimum, or I'm not sure.

Depending on the kind of the charges, the degree of penalties differs, right? So, pros could be a minimum three years, free imprisonment, but if it involves the bigger amount, there is a special law increasing some minimum influence. period, I think. For instance, five or ten years. For minimum? Yeah, yeah. And is there a maximum sentence? As I told you, I'm not criminal lawyer, but I can check very promptly. If time allows, I will check. Zach, I want to ask you, did Doe talk at all about how he felt about the prospect that he might go to prison? Yeah, I mean, honestly, that was pretty fascinating. And again, you know, this is someone who was, I think, heralded as the founder of a top 10 crypto project just months before was seen as one of the most loud, eccentric, and accomplished crypto founders to go from basically zero to top 10 in a matter of years. And then flash forward a few months and I'm on the streets of Singapore as he's left his home country asking him about the prospects of jail time. It's a wild night and day kind of situation in crypto for a project like that. And pretty wild for anyone who followed it or lost money in it. But yeah, the question.

was, you know, what are the prospects and how prepared are you to face these charges? And, you know, the realistics, as Jangbeck's describing there, is jail time. And are you prepared to go back to Korea for jail? And his answer to that in our piece on coinage.comedia was, look, life is long is what he said. And I was kind of struck by that. I stopped on the street when he said that because pretty wild to think about, you know, all of this falling apart. And then the prospect is, okay, I could be in jail. And he was prepared for that. It's almost as if, you know, if the charges, are brought and I'm found guilty and I have to go to jail,

you know, life is long and if that's the way it's looked at, then, you know, that's what happens. It's fascinating to you, I think from a character study, I mean, you know, Joe is a guy who served in Korea's military and does feel attached to Korea and that was kind of the line of questioning was, look, your family's there.

I mean, do you feel like you want to go back? And I think there was a sense of that. And obviously, no person who's brought to kind of face charges ever does so, I guess, or ever would have kind of, you know, the thinking that, okay, I can face these charges on my terms. That's not the way that we do things here in the U.S. either. You kind of face them when the lawyers say or prosecutors say these are the charges and this is how

you have to face them. That's kind of an interesting piece. But, you know, at least is what he told us is life is long and if I have to face those charges, I'm convicted. You got the sense from that at least that he was prepared to face the prospect. Yeah, given that statement and then the fact that he wasn't in Singapore after the arrest warrant, those things obviously are at odds with each other, yeah. There's a lot that seems at odds through the whole story, right?

It's strange the way that everything kind of played out, and there's inconsistencies there for sure, especially if you think about failure versus fraud and the prospects of the risks that Doe and everyone at Terra for sure were aware of, not even just for a dollar pegs, but any currency in history that tries to stay dollar pegged. Those risks are obvious to anyone who's ever studied economics. And so the inconsistencies there, if you appreciate those and understand those to say, oh, wow, this went to zero. And I would have never guessed that this could have happened also seems pretty inconsistent

as well as far as risks and disclosures are concerned. So yeah, there's a lot of inconsistencies that we raised and kind of held do-to-account-to in the interview in that two-part series. Yeah, I mean, I definitely would say like the level of arrogance he showed. And then, you know, the history of algorithmic stable coins, which largely have all failed, it just, again, doesn't compute. So maybe we're not going to find out, unless are you close to?

For ordinary fraud, fraud, it's subject to less than 10 years' imprisonment or $20,000 U.S. dollars around the penalty fine. And then, as I told you, if the damage is over a certain amount, like 5 billion Korean one is subject to lifetime imprisonment or more than five years imprisonment. Okay.

And so I don't know the exchange rate, but I'm assuming Terraform Labs is, or sorry, the Terra project is above that threshold. Yeah, based on all the available information so far, if we assume that the, particular charge will be accepted by court. Maybe the damage amount will be exceeding that amount, I think. Yeah, it seems so. Okay, last couple of questions. I also just wanted to ask about the class action lawsuit in Korea against Doe and Terraform Labs. Do you have any update on where that case is now? There was a criminal claimant who brought their claimant letter to prosecutors at the beginning of this or procedure. But I have not heard about any civil litigation, class litigation, so far.

But I'm not sure it might happen in coming months, I think. Okay, and Zach, did Doe talk about that at all with you? The class action lawsuits? No, we didn't get too much into the class action lawsuits versus the criminal ones that I think, you know, are right now, as we just heard, their life imprisonment and all the charges there are a bit higher than the civil ones. So we focused most of our time on that and what went wrong. But I think there have even been a few that have popped up since our interview as well. So, I mean, those class action lawsuits, depending on the jurisdictions, this is a global problem, are popping up in almost every country, including, I think, in the U.S. as well against. finance, US, who's attached to listing some of the Terra coins as well. So, I mean, this is,

this is a big one that I guess on a civil front now brings in all the exchanges that ever listed those as well. Yeah. I mean, yeah, the impact of this is, you know, global and huge. I mean, I saw you mention in your interview that your co-founder's family friend committed suicide over this. So there's been like real, real, real damages to people. Okay, so we're over time, but I did just want to ask one last question of Zhang Beck. Overall, how would you say the whole terror debacle has affected the perception of crypto by the public in Korea? And the reason I'm curious about this is that ever since 2017, the perception outside of Korea

is that Korea has been much more enthusiastic pretty much than any other country in the world about crypto. So I was curious if this whole debacle has dampened that or if it's still remains. It's quite a big influencing the phenomena and the events. It's true. And then at the beginning of outbreak of these events, many people were afraid of having the oil market or community will be very decreased. But I think it has been recovered gradually. So, of Of course, the other influence is that some people who did not know about crypto space became to know who the token is and then what's happening in this community, which means

that more people get to know this phenomenon and what token is and what the issues are, right? It's kind of some black marketing, I think. And then for communities and some experts in this area, they are still afraid of having some bad impact on community or the public. But they think this event could be another chance to make more a lot and then to have more balanced attitude or thoughts about token and the token economy. So it could be a good lesson and then could be good, in fact, on the market. Yeah, I would agree.

Hopefully, yeah, this will lead to more tempered attitudes toward crypto, rather than kind of blind faith that it's always going to be number go up. Okay, well, both of you, this has been such a great discussion. I was so glad we were able to make this happen. And thank you, Jung Beck, for doing this Friday night, your time. Probably not your favorite time to be working, but it helped us, you know, just make sure that we had all the latest news out of Korea, at least for this work week. And Zach, thank you for waking up early to record this. Where can people learn more about each of you and your work? So for us, I mean, you know, the interview, I think it's still the only interview that Doe is given. You can go to coinage. Media or follow our YouTube page or on Twitter, Coinage Media to find more about that. And the community-owned model that we're trying to prove out in Web 3 right now, using NFTs and verifiable co-ownership to co-own a crypto show to focus in on all these big issues facing it.

But people can go watch that interview part one and part two to learn more about Doe's thinking around what happened here in the failure versus fraud debate around Territory. is collect. Zhang Beck. Okay, great. Well, it has been such a pleasure having you both on Unchained. Yeah, thanks so much for having us, Laura. Appreciate it.

Thanks so much for joining us today. To learn more about the legal case against Tara and Doquan, check out of the show notes for this episode. Unchained is produced by me, Laura Shin, pulled out from Anthony Yun, Matt Pilchard, Juan Oranavich,

Pamajimdar, Shashank, and CLK transcription. Thanks for listening.