Prosecutors said they arrested four executives of two cryptocurrency exchanges for fraud and embezzlement, due to concerns over the bursting of a market bubble.
Kim Ik-hwan, head of Coinnest, and three others were placed in custody on Wednesday after a court issued arrest warrants for up to two days, the Seoul District Prosecutors Office said.
The prosecution’s warrant of arrest for Kim was driven by The Seoul Metropolitan Government’s Financial Investigation Division search of three virtual exchanges starting on December 12th, 2017. CoinNest was included in this search. Coinnest is thought to be the fifth-largest exchange based on trading volume in South Korea.
It is the first time that responsible for a cryptocurrencies exchange is arrested as a criminal suspect.
They are accused of transferring billions of won from customer accounts to their private accounts, while not conducting cryptocurrency transactions.
Prosecutors broke into the offices last month after a complaint filed in January by the financial authorities.
The prosecution was also reported to be investigating another virtual currency exchange that invested funds collected from ordinary people using a deceptive scheme. Adding to the curious nature of the arrest, the Korea Blockchhain Association said, “CoinNest already resigned before the investigation.”
The nation will prioritize transparency in trading of virtual currency within the boundaries of the current law, and block illegal and unfair activities, but it stopped short of banning trading.
South Korean government officials have made ambiguous and sometimes contradictory statements about how the country would regulate cryptocurrency exchanges. Though the same officials have later clarified their positions at formal press events, news rumors and the language/cultural barrier have been blamed for causing various asset prices to both soar and tank in recent months.
The country has become a hotbed for digital asset trading in the past year as volumes shifted away from China, regulation in Japan tightened, and unclear local laws permitted a degree of anonymous and unregulated activity.