Korean Crypto Exchange Upbit Raided Amid Suspicions of Fraud
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Upbit, the world’s fourth largest cryptocurrency exchange by volume and South Korea’s biggest, has been raided by the financial investigation team from Seoul Southern District yesterday on suspicions of fraud.
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Prosecutors have alleged that Upbit, which commenced operations only in September 2017 and quickly upended the dominance of local rival Bithumb, was allowing customers to trade in cryptocurrencies it did not actually hold. Prosecutors suspect the exchange has been falsely reporting the funds in its possession. As per an official from the prosecutors’ office:
“We found some circumstantial evidence that shows Upbit sold a larger amount of crypto coins than it actually owned in the early business phase.”
Local media outlets have reported that, in a joint action between the Korean Financial Intelligence Unit (KIU), the Financial Services Commission, and the Seoul Police, ten officers stormed the Gangnam, Seoul headquarters of the exchange yesterday morning. As at press time law enforcement remains at the exchange and have seized hard drives and accounting records.
“UPbit is currently under investigation by the prosecution, and we are working diligently. UPbit services such as all transactions and withdrawals are operating normally. Your assets are kept securely in your account, so you can rest assured that you can use UPbit services.”
A Solid Corporate Citizen
Upbit enjoys a reputation as a solid corporate citizen in Korea. Its parent company is the widely popular KakaoTalk messaging app, part of the Kakao Group. Should Upbit be found guilty of serious criminal misconduct, Korean confidence in domestic exchanges – to which they are largely bound given the country’s strict money control laws – would plummet.
The exchange also runs a scheme whereby it rewards whistleblowers of multi-level marketing scams disguised as ICOs. According to a company statement:
“If illegal multi-level eyewitnesses or victims report to Upbit and investigating agencies at the same time, a cash award will be given to the first reporter of the illegal recruitment case. To the original complainant, Upbit pays a reward of 1 million won (around $900 US dollars).”
The seizure of Upbit follows the arrests just over a month ago of four executives from two other Korean exchanges on charges of embezzlement and fraud, transferring billions of Korean won from customers’ accounts to their own. CoinNest’s CEO and co-founder Kim Ik-hwan was among those arrested and charged.
Shady Past Catches up With Upbit
Lee Seok-woo, the company’s president, is also under investigation for the role he may have played in Upbit’s alleged fraud. Lee is the co-founder and former CEO of KakaoTalk. He left the company in 2015 after being accused of failing to prevent the spread of child pornography on Kakao services. Last year, he was appointed as the new chief of Dunamu, the company that operates Upbit.
The startup exchange notably refused to join other South Korean exchanges in support of self-regulation at the end of last year.
Korean authorities have been actively monitoring and investigating domestic cryptocurrency exchanges to prepare for a fully regulated industry and to reduce potential risks to traders. The investigations have snared the CoinNest executives, and have included raids on Bithumb and Coinone, which are under suspicion of tax evasion.
At press time, numerous reports suggest an exodus of funds from the exchange among its customers:
UPbit got BOGGED. pic.twitter.com/16cUBsoOIP
— Korean Cryptocurrency & Blockchain News (@BlockchainROK) May 11, 2018
Have your say. If Upbit has been lying about its crypto reserves, will that shake Korean confidence in domestic exchanges?
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