The cryptocurrency market, lauded for its decentralization and the promise of financial democratization, faces a rising concern: dishonest exchange operators and executives. According to a local media outlet, South Korean prosecutors have identified one of the largest financial frauds in the country’s crypto market. Recently, the CEO of prominent crypto exchange Bitsonic, Mr Shin, has been arrested and indicted over allegations of a 10 billion won fraud.Â
The Dark Side Of Crypto Exchange Operators
The crypto community, both in South Korea and globally, is reeling from the shocking revelations. With digital currencies gaining increasing acceptance and adoption, recent high-profile cases expose the risks and vulnerabilities in the still-evolving sector.
According to a detailed report by Chosun Biz on August 8th, Mr. Shin is accused of having manipulated Bitsonic’s computer systems between January 2019 and May 2021 to artificially inflate the price and trading volumes of various virtual assets. By misrepresenting trading activity, Shin allegedly attracted unsuspecting investors eager to capitalize on booming digital currencies.
Additionally, in an alarming twist, Shin is alleged to have taken advantage of his control over Bitsonic. He is accused of selling cryptocurrency lock-up products to customers and stealing 10 billion won, even when the exchange faced deficits so significant that it couldn’t honour withdrawal requests from its investors.
But the allegations don’t stop with Mr Shin. The prosecution has also implicated Mr. A, the Vice President of Technology at Bitsonic. He faces charges of obstructing business, although he has been handed over to trial without detention.
In mid-2021, South Korea’s leading financial watchdog, the Financial Services Commission (FSC), refuted claims about potential plans to close several local cryptocurrency exchanges over allegations of fraudulent practices. This clarification arrived at a time when multiple smaller South Korean crypto exchanges had recently paused their operations. Notably, the local crypto exchange, Bitsonic, conveyed through its official Telegram channel on a Friday that it would be temporarily ceasing operations due to a combination of internal and external challenges.
South Korea Continues To Catch Fraudsters
Last month, South Korea passed a crypto bill to provide greater protection to users. Set to be implemented next year, this legislation amalgamates 19 different proposals from legislators. It not only establishes a clear definition of digital assets but also stipulates punitive measures for unjust transactions.
Under the new law, service providers are mandated to separate user assets, obtain insurance, keep a portion of reserves in cold storage, and document every transaction. The Financial Services Commission is granted the power to supervise and audit service providers, while the Bank of Korea is authorized to solicit data from these providers.
On 27 July, South Korea initiated a multi-agency investigation team to address cryptocurrency-related offences following a spike in illicit activities within the market and insufficient legal safeguards for investors. The team is currently investigating frauds conducted by Delio, Haru Invest, and WEMIX.
Comprising around 30 members from legal, financial, taxation, and customs sectors, the “Joint Investigation Centre for Crypto Crimes” has been established, as announced by the Prosecutor’s Office.
The statement highlighted, “Though virtual assets are now on par with stocks as investment products, the existing legal framework and systems leave market participants virtually unprotected.”
The recently established team will concentrate on cryptocurrencies that exhibit significant price fluctuations or face potential de-listing. It will also address illicit trading behaviours such as market tampering and insider dealings and probe into tax avoidance, unauthorized overseas transfers, and the hiding of illicit gains from crypto dealings. A primary aspect of their role will involve tackling money laundering endeavours through cryptocurrencies.
Losses from cryptocurrency-related offences in South Korea skyrocketed by 118% in the past five years, reaching 1.02 trillion won ($797.81 million) in 2022, as per a report. This includes a diverse range of illicit activities, from price tampering and unauthorized foreign exchange dealings to Ponzi schemes.
