It was revealed on Thursday that four executives from two cryptocurrency exchanges are being questioned by South Korean police over alleged embezzlement.
The detentions of Kim Ik-hwan, CEO of Coinnest, and the other executives, whose names have not been published, is part of a crackdown on cryptocurrency fraud over the past few months. This arrest of Kim follows another raid last month of exchanges in Yeouido, South Korea’s own Wall Street equivalent.
The prosecutor’s office claim that billions of Korean Won (KRW) had been transferred from clients accounts. Coinnest, whose executives have now been replaced, is the fifth-largest exchange based on trading volume in South Korea. A “specialized management system” has been introduced at Coinnest in order to “resolve customer anxiety” since the arrest of the company’s CEO, according to a statement released this week.
The arrests demonstrate the South Korea government’s intent to clean up the industry following its adoption of further regulatory measures earlier this year. Although the government stopped short of banning trading, it has stated it needs to prioritize more transparency in dealings. Last year, the Financial Services Commission (FSC) prohibited domestic companies from participating in ICO activities. The FSC warned then that further measures would be introduced as part of an “intensive crackdown” including on-site inspections and analysis of user cryptocurrency accounts.
The new measures introduced at the end of last year saw a wave of arrests and closures of fraudulent companies marketing fake cryptocurrencies, which, according to FSC amounted to illegal profits of USD 22 million from around 1,000 investors. The measures were seen by many in the industry as the government’s answer to legislators in South Korea who wanted a complete ban on cryptocurrency trading.
Other measures to combat embezzlement include the requirement that cryptocurrency traders associate their real names to accounts, the prohibition of mining, and the ban on overseas institutions and individuals in domestic crypto trading.