Four executives have been detained in South Korea on suspicion of embezzling customers’ funds. The individuals from two cryptocurrency exchanges are accused of transferring cryptocurrencies worth millions of dollars from their customers to their personal accounts.
One of the detained men includes Kim Ik-hwan, the CEO dof Coinnest, one of the largest exchanges in South Korea. Another is said to be the head of another cryptocurrency exchange in South Korea.
“They are being questioned about the embezzlement of billions of won (tens of millions of dollars) from their clients’ accounts and transferring it to their own,” Reuters quotes an official from the prosecutor’s office as saying.
Coinnest Apologises
Coinnest has since apologised to its customers in the wake of the allegations and confirmed that the executives has been removed from the company. The focus now is to recover the stolen assets for its customers, the company said in a statement posted on its website.
‘In addition, we will announce the disclosure of accounts and investors’ deposits through external agencies in the near future and will notify all of our customers that their deposits are securely maintained,’ the statement continued.
Coinnest says it has enlisted a team of professionals in security, finance and technology to safeguard customers’ deposits but also to ensure a conducive trading environment.
The move is the latest in ongoing crackdowns in South Korea, Japan and the US on cryptocurrency exchanges.
Coinnest and two other exchanges had also been raided in March and documents confiscated. Seoul’s southern district prosecutor’s office says it is widening its net to other cryptocurrency exchanges.
Largely Unregulated
The sector is largely unregulated across the world, a fact that has seen a lot of criminal activity in the sector.
The recent G20 summit agreed on the need to regulate the sector and members are expected to submit their proposals in July on the best way forward.
While this is not necessarily good news for diehard crypto enthusiasts, some sections welcome regulation as necessary to take the sector to the next step.
Cryptocurrencies have been on a downward trend for much of this year mainly due to regulatory uncertainty.
Lately, crackdowns on cryptocurrency exchanges have intensified as authorities become wary of the sector.
Trading Hotspot
South Korea is a cryptocurrency trading hotspot and the government attempts to nip it in the bud has done little to dent its growth. Volumes have gone down by just about 5% despite more notable declines in other locations.
Remarks from a regulator interpreted by many as signal for an impending ban were met with uproar in February forcing him to retract the statement.
Nevertheless, the justice minister recently said a bill to ban cryptocurrencies altogether is in the offing.
Sustained Onslaught
Operators have blamed the sustained onslaught on the sector by the government for the recent decline in trading.
Two days ago, the Fair Trade Commission, an agency that ensures fair competition ordered 12 exchanges to revise their adhesion contracts. The body said the terms of the contracts put customers at a great disadvantage often having to shoulder all the losses that come from exiting an exchange. FTC also said customers were being unfairly prevented from making withdrawals.
A large part of the South Korean population participates in cryptocurrency trading with those in their 20s and 30s being the most active, a recent survey shows.