In a jolt of bad news for cryptocurrency enthusiasts, several executives from South Korean digital exchanges have been detained for questioning regarding alleged embezzlement of users’ funds. Observers have commented that the allegations come at a particularly bad time for digital coin enthusiasts, with global regulators scrutinizing exchanges for compliance.
Coinnest Implicated but Silent
Lawmakers the world over are taking a long, hard look at cryptocurrencies and the exchanges that trade them. The news of the alleged embezzlement is an unfortunate input into the legislative debate around what are still mostly unregulated exchanges in many countries.
A total of four executives from two of South Korea’s virtual currency exchanges were detained on April 5, 2018. Although three executives and one exchange remain nameless, prosecutors have identified possibly the highest profile detainee as Coinnest CEO Kim Ik-hwan.
Coinnest has grown to become Korea’s fifth-largest digital coin exchange. South Korea is the world’s third-largest cryptocurrency trader, with unusual enthusiasm among the population, often countered by equally stern noises emanating from government.
Police have not released details of possible collusion among all four executives or whether Kim and the others are being investigated for separate allegations. Coinnest’s operations still seem to be running as business as usual. The company has yet to issue a statement about the unfolding drama.
The current investigation is the first incident of inside criminal activity on digital exchanges in South Korea. It appears that those detained have been involved in orchestrated maneuvers to siphon funds from the exchanges for their own use.
An unnamed representative of the Seoul prosecutor’s office said that:
“They are being questioned about the embezzlement of billions of won from their clients’ accounts and transferring it to their own.”
While prosecutors have yet to decide whether to issue warrants of arrest, there does appear to be a prima facie case to pursue.
Cryptocurrency Embezzlement a Provocation to Korean Regulators
Because of this, Korea is seen to impact on the region’s adoption of cryptocurrencies and, perhaps now less, fortunately, on the region’s regulators as well. Local lawmakers are particularly concerned by the fact that many pensioners are often trading large sums in digital exchanges.
In the aftermath of December 2017’s bitcoin hysteria, Korean regulators promised to throw the book at anyone found behaving illegally in the digital coin arena, looking primarily at the exchanges that hold substantial investor funds.
As lawmakers struggle to formulate applicable legislation for such a new asset class, the news of illegal activity cannot be helpful to the case for a decentralized currency.
Other relevant arms of South Korea’s government are now hastening detailed regulations to govern cryptocurrency markets. Officials also indicated that they now plan on looking at other digital exchanges and investigating their affairs for possible illegal activity.