Is the WEMIX Coin Held by Kim Nam-guk a Security? ... Legal Community Reacts with Skepticism

Moon Chan-seok, Inaugural Head of Joint Investigation Unit, "Difficult to Encompass Investment Contract Securities under Capital Markets Act"
Seung Jae-hyun, Senior Research Fellow, "Unclear if Cryptocurrency Has Real Property Value"
Attorney Koo Tae-eon, "Legal Opinion Issued Stating 'No Securities Characteristics' for All Coin Listings"

On December 2nd last year, representatives of the victims' council of the WEMIX incident shouted slogans in front of the Upbit headquarters in Gangnam-gu, Seoul, condemning the Digital Asset Exchange Joint Council (DAXA), which decided to end trading support (delisting) for the cryptocurrency WEMIX.

As the prosecution investigating independent lawmaker Kim Nam-guk's alleged cryptocurrency trading is reviewing the securities status of the virtual currency WEMIX to determine the applicability of the Capital Markets Act, the legal community has generally expressed skepticism about the securities nature of cryptocurrencies.

In particular, some have pointed out that the government's past official stance?that virtual currencies are difficult to view as money or currency and that virtual currency transactions are not financial transactions?and its failure to regulate coin issuance were mistakes, raising concerns about potential state liability for damages.

On the 25th, Moon Chan-seok, a securities crime investigation expert and former head of the inaugural Joint Securities Crime Investigation Unit, said, "It will be difficult for virtual currencies to be encompassed under investment contract securities under the Capital Markets Act," adding, "If the prosecution indicts on charges of violating the Capital Markets Act related to coins, it will be fiercely contested in court."

He added, "When the prosecution investigated the Terra and Luna incidents last year, I thought it would be difficult to apply charges such as fraud or violations of the Capital Markets Act except in cases where bribes were exchanged related to coin listings."

The Seoul Southern District Prosecutors' Office's Financial and Securities Crime Joint Investigation Unit (now the Joint Investigation Department) filed two arrest warrants for Shin Hyun-sung, the former general representative of Chai Corporation and a key suspect in the Terra and Luna crash incidents, on charges including fraudulent unfair trading under the Capital Markets Act in November last year and March this year, but both were dismissed by the court.

Seung Jae-hyun, a senior research fellow at the Korea Institute of Criminal Justice Policy, said, "For the Capital Markets Act to apply, securities status must first be recognized, and for something to be considered securities, property rights must be reflected," adding, "Stocks reflect the value of a company as an entity, but it is ambiguous where the property value of virtual currencies can be found."

He explained, "Coins can be broadly categorized into payment-type coins like Bitcoin, investment-type coins (stablecoins) like Terra and Luna that can reflect a company's profits, and so-called 'pump-and-dump' coins that are just for speculative gains. Among these, investment-type coins have some possibility of being considered investment contract securities under the Capital Markets Act," adding, "The WEMIX coin held by lawmaker Kim is issued by a company called Wemade, but since the company's profits are not reflected in the WEMIX coin, it is difficult to apply the Capital Markets Act. Even if WEMIX is considered an investment-type coin, only provisions related to fraudulent unfair trading under the Capital Markets Act can be applied, while insider trading using undisclosed information or market manipulation provisions do not apply."

Attorney Koo Tae-eon of Law Firm Lin said, "All domestic virtual currency exchanges require issuers to submit a legal opinion from a law firm stating that the coin is not a security under the Capital Markets Act when listing coins."

Attorney Koo added, "During the first Bitcoin boom in 2017, the government defined virtual currencies as difficult to view as money or currency at that time and not financial products, but stated that if virtual currencies are used to raise funds in the form of securities, it could be punishable under the Capital Markets Act."

He explained, "As a result, exchanges began attaching legal opinion letters to avoid the securities status of virtual currencies."

He also added, "If coins like Luna or WEMIX are considered securities under the Capital Markets Act, it means the government neglected illegal securities circulating on government-approved virtual currency exchanges, thus raising government supervisory responsibility."

The securities status of the virtual asset WEMIX issued by Wemade was also an issue last year. In May last year, attorney Ye Ja-seon of Law Firm Gwangya filed a complaint with the Financial Services Commission, arguing that WEMIX should be considered an investment contract security and claimed it was similar to Musicow, a music copyright investment fractional platform.

The Securities and Futures Commission under the Financial Services Commission judged in April last year that fractional investments related to Musicow, an investment product allowing investors to invest in music copyrights in one-share units, have a similar nature to existing securities as "investment contract securities" and that the Capital Markets Act can be applied.

The United States distinguishes virtual assets into securities-type virtual assets and non-securities-type virtual assets, applying the same regulations to securities-type virtual assets as existing securities, but such classification criteria have not yet been established in South Korea.

A Seoul Southern District Prosecutors' Office official investigating the case related to lawmaker Kim said to reporters on the 23rd, "We are reviewing the securities status of WEMIX."

However, the official showed caution, saying, "Since the applicability of the Capital Markets Act differs depending on whether a coin has securities status, we have been reviewing the securities status of virtual currencies extensively since the Terra and Luna cases. Even if it were a coin other than WEMIX, we would have reviewed its securities status, so please do not attach too much significance to this."

This content was produced with the assistance of AI translation services.