Lawyer in charge of suing Wemade for ‘Kim Nam-guk Coin’ “Wemix’s securities properties must be proven… The same goes for Terra Luna.”

Interview with Attorney Jaseon Yeh of Kwangya Law Firm
Virtual assets are investment contract securities… Should be punished for ‘fraudulent trading’ under the Capital Markets Act

After the price collapse of the ‘Terra Luna’ coin occurred last year, the domestic legal community was at the center of the topic of whether virtual assets were securities. In order to apply the charges of violating the Capital Markets Act as well as the criminal law, Luna had to be recognized as investment contract securities (securities containing an agreement in which an investor decided to invest in a specific business with others and receive a distribution of profits). The problem is that in this case, a dilemma arises in that all virtual assets of a similar type must be viewed as securities and regulated.

In the midst of the social uproar over the case of Kim Nam-guk, a member of the Democratic Party who recently left the Democratic Party, investing in the ‘Wemix’ coin, there is a person who has rekindled the issue of the securities of virtual assets. Ye Ja-seon (Judicial Research and Training Institute 33rd class) lawyer at the law firm Gwangya. Attorney Ye, who started as a prosecutor at the Suwon District Prosecutor’s Office and served as the head of the Deposit Insurance Corporation and Kakao Pay’s legal office, is representing 22 investors in lawsuits against WeMade, the issuer of Wemix.

On the 15th, the day after the complaint against WeMade, CEO Jang Hyun-guk, and Chairman Park Gwan-ho was submitted to the Seoul Southern District Prosecutor’s Office, I met Attorney Ye at the Kwangya Office in Yeouido, Seoul. We heard more about the reasons for representing the case and why it is important to prove the securities of coins.

Ye Ja-seon Lawyer. / Courtesy of Law Firm Gwangya

Representation of 22 Wemix investors… “Looking at Kim Nam-guk’s case, blood gushed up backwards”

Wemix is ​​a coin released in 2021 by Wemade, a game company that was a representative of P2E ( Play to Earn · Money Making Games). It was possible to earn money through games and convert it into Wemix to cash. The market price also rose 200 times compared to the time of listing, but it was delisted from the domestic coin exchange on December 8th of last year after a controversy arose that the circulation volume was deceived and falsely disclosed (Coinone was re-listed on February 16th of this year).

Attorney Yeh argued that WeMade “made huge profits by deceiving investors with intentional and serious false information” about the distribution of Wemix, and that “this constitutes fraudulent illegal trading of investment contract securities and fraud.”

Since the price of virtual assets is determined by the principle of supply and demand, circulation volume is very important information for investors to make decisions. In the case of Wemix, the issuer (WeMade) issues and stores a considerable amount of coins, and then distributes them according to the ‘planned distribution volume’ to earn profits. Therefore, if the issuer distributes coins in excess of the planned level, the issuer can obtain a large profit, but the investors suffer losses such as a decrease in the coin price due to the increase in circulation.

Example The first charge against WeMade, which the lawyer claims, is fraud as stipulated in Article 347 of the Criminal Act. The main point is that it not only violated the planned distribution volume, but also violated the promise that there would be no additional liquidation of Wemix from February of last year. Lawyer Ye believes that disposing of all Wemix owned by CEO Jang Hyun-guk and Chairman Park Kwan-ho at a high price among such public statements constitutes a serious act of deception.

In the complaint, Attorney Yeh said, “It was reported that Nam-guk Kim owned Wemix worth 6 billion won.” When I think of the fact that I couldn’t have been in a position to invest my own money like we (the accusers), my blood rushes backwards,” he wrote. There is a suspicion that WeMade provided Wemix to Congressman Kim for free and lobbied for ‘pro-coin legislation’.

In order to apply for the Capital Markets Act, it is necessary to prove ‘securities’

Lawyer Ye argues that WeMade should be punished not only under the Criminal Act but also under the Capital Market Act. Article 178 of the Capital Markets Act stipulates, “Anyone shall not ▲use fraudulent means, plans, or techniques in connection with trading of financial investment products or other transactions ▲make false statements or representations regarding important matters or cause misunderstanding to others. An act of obtaining monetary or other property benefits by using documents or other descriptions or indications that are missing descriptions or indications of important matters necessary for You must not engage in any act of using the market price of Failure to do so constitutes a ‘fraudulent transaction’.

The key issue is whether Wemix falls under the ‘financial investment product’ subject to the Capital Markets Act. Yes The lawyer insists that Wemix should be viewed as ‘investment contract securities’, a type of financial investment product. Investment contract securities are the most comprehensive concept among the six types of ‘securities’. It is a concept that can be applied when a new type of investment relationship that is not applicable to other securities emerges, and it is a device made to be regulated by the Capital Market Act in case of problems.

Attorney Yeh said that we should look closely at the definition of the concept of investment contract securities. According to Article 4 of the Capital Markets Act, “investment contract securities refer to the result of a joint project mainly conducted by a third party after a specific investor has invested money, etc. in a joint project between the investor and another person (including other investors. It means that the right under the contract to be attributed to the profit or loss according to the contract is indicated.” in other words,A relationship in which money is jointly invested in another person’s business can be defined as investment contract securities.

“The essence of a financial investment product is not a one-to-one investment, but a large number of people pooling their money and jointly investing in a business. This business is not run by the investors themselves. It’s a business that runs and makes money. In the case of virtual assets, the most essential investment reason is an increase in value (market price), and investors have the right to enjoy profits by disposing of them, so they are ‘bearer securities’. The same goes for Wemix. Investors have the right to realize profits by selling WeMIX when the value of WeMix increases as WeMade does business. Looking at the purpose and concept of investment contract securities, WEMIX corresponds to a typical investment contract securities.”

Attorney Ye also mentioned the fact that the Financial Services Commission applied the legal principles of investment contract securities to the music copyright investment platform ‘Music Cow’ last year. Music Cow was defined as an investment contract securities in recognition of its role as a platform for individual investors to split objects that are difficult to jointly own and make and manage them as financial products.

“The reason Sculpture Investment became an investment contract securities was because the leading business of the platform was recognized. Virtual assets, like Bitcoin, are produced by mining with the participation of an unspecified number of people, or, except for a few cases, such as Dogecoin, which was neglected as a joke, most operators have already issued all of them and created an ecosystem to appeal the investment value and sell them. applicable to contract securities. ”

Profit deprivation and disclosure may be compulsory when securities are recognized

If Wemix’s securities properties are recognized, the Terra Luna case can also be subject to the Capital Markets Act. Attorney Yeh explained, “In the case of Terraform Labs CEO Kwon Do-hyeong, the sale of Luna using false information will be punished and profits will be deprived.” According to the current law, the profits obtained from fraudulent illegal transactions and the properties derived from them can be confiscated and collected under the Criminal Proceeds Control Act.

If coins fall under securities, there is an obligation to disclose where they are used before raising investment funds, making it possible to prevent fraudulent transactions.

“Isn’t it okay to promote it as a good coin and use it to buy a house after accepting the money? If virtual assets become investment contract securities, the 안전놀이터‘investment relationship’ is legally regulated. Therefore, the coin issuer is obliged to ‘promise in advance how to use this money, receive investment, and disclose important facts related to it’. ”

Attorney Yeh reiterated that proving securities is the most important issue related to virtual assets. “Although tax deferral and P2E-

related policies centered on business operators have been discussed a lot, the issue of securities judgment, which plays a decisive role in recovering damages from investors, is being neglected. As social interest in the issue of virtual assets has grown again due to Congressman Kim’s case, I hope that this opportunity will properly shed light on the issue of securities judgment.”

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