Leaders of South Korean Exchange Jailed for Faking Trading Volume

Leaders of South Korean Exchange Jailed for Faking Trading Volume

South Korean cryptocurrency exchange Komid has been charged with faking transaction volume to attract new users and investors and increase their profit. Komid CEO Hyunsuk Choi has been sentenced to three years in prison, while a second Komid corporate officer has also been charged and sentenced.

An audacious Choi has indicated that it’s South Korea itself that is at fault for his crime for inadequately regulating the space and allowing frauds like Komid’s to go undetected for so long. Whether or not you buy into this line of reasoning, most of us will agree that further regulation for investor protection would be a boon to the cryptocurrency industry, in South Korea and beyond.

Komid is charged with faking more than 5 million transactions. These transactions netted them more than $45 million in profits from defrauded investors. This phony trading volume was also used to make it look like Komid was a much more popular exchange than it actually was, thereby attracting new investors to the platform.

South Korean exchange Komid faked volume

Echoevg/Shutterstock.

Komid isn’t the only crypto exchange in South Korea accused of defrauding investors

Komid isn’t the only South Korean exchange wrapped up in this wave of fraud allegations. Three members of South Korea’s number one crypto exchange, UpBit, have also been indicted (though not arrested) for similar charges. These allegations surfaced in December 2018, though UpBit has vociferously denied them. Rumours that another major South Korean exchange, Bithumb exchange, has also faked volume have been denied by the exchange itself. At the moment, Bithumb still maintains a good reputation, although trust in exchanges in general has been breached among Korean investors.

What are we to make of this news? To the outside observer, it seems pretty clear that many crypto exchanges in South Korea have faked volume. And while we’re sure that some of this was done to generate unearned profits, we also see this news as a sign of the times.

Today’s cryptocurrency exchange industry was designed for the peak of the 2017 market, when global trading volume was many times what it is today. It’s hard for crypto exchanges to survive with trading rates so low. It’s most likely that a great deal of this volume fakery was done in an attempt to attract a greater portion of the global trading population. For nations like South Korea, where the regional population is not as large as for exchanges in the EU, United States, or China, it’s easy for exchanges to starve for lack of customers.

This doesn’t make it OK for these exchanges to have defrauded their customers, and they deserve everything they get from the authorities – but it makes sense in this market climate. We’re likely to see more indictments and crypto exchange hacks as the year progresses, at least until the bulls return to crypto.

Featured image: Lukasz Stefanski/Shutterstock

 

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