Last Month's Domestic Cryptocurrency Exchange Daily Trading Volume 17 Trillion Won
Cryptocurrency Scam Report Consultations Up 41.6% Year-on-Year
[Asia Economy Reporters Byungdon Yoo, Jeongyun Lee] ‘If you purchase virtual currency sold by a certain Chinese group, you can earn enormous profits.’
Lee, who operated a virtual currency sales company, recruited investors from October 2018 to May 2019 using this phrase. He held business briefings, promoting that "the Chinese company targeted for investment is a solid business with a 30-year history and a scale of 500 trillion won," and that "they plan to enter the electric vehicle industry with an investment of 4 trillion won." After recruiting investors, he divided members into tiers based on the amount of virtual currency they held and paid ‘referral commissions’ for recruiting new members. To dispel investors’ doubts, he posted false announcements about the virtual currency and even created a Naver Band where goods could be traded.
The virtual currency had no real substance and was essentially a pyramid scheme product. Over 1,300 people fell victim to his scam within seven months, with damages amounting to 17.7 billion won. On the 16th, Judge Sangmin Jo of the Seoul Southern District Court sentenced Lee to six years in prison and handed down suspended sentences of three years with 18 months imprisonment and two years with eight months imprisonment to two others, A and B, who were indicted for participating in and aiding the crime.
Another operator, Lee, also created an illegal pyramid scheme disguised as a virtual currency exchange. This company attracted members by promising to triple their investment of several million won per account within six months and to pay various commissions for recruiting new members. The number of members using this service reached 20,000, and the total amount deposited to the headquarters within six months after the exchange opened is estimated to be around 2.4 trillion won. The Gyeonggi Southern Provincial Police Agency has launched an investigation into Lee, the company’s executives, and key recruiters on charges including fraud, quasi-deposit-taking, violation of door-to-door sales laws, and manipulation of electronic ledgers.
As the so-called ‘Bitcoin frenzy’ has increased interest in virtual currencies, related investment scams are also on the rise. According to the virtual asset statistics site CoinMarketCap.com, the daily trading volume of domestic virtual currency exchanges last month reached a staggering 17 trillion won. This figure surpasses the average daily trading volumes of the KOSPI (16 trillion won) and KOSDAQ (11.5 trillion won). This demonstrates the rapid growth of the virtual currency market that began around last year.
Accordingly, crimes related to virtual currency investment are also increasing. The number of reports and consultations regarding companies suspected of quasi-deposit-taking, including virtual currencies, received by the Financial Supervisory Service from January to October last year was 555 cases, a 41.6% increase compared to the same period the previous year.
The authorities have also taken measures. The police plan to conduct nationwide intensive crackdowns on livelihood financial crimes such as virtual asset quasi-deposit-taking. They will establish dedicated investigation teams within city and provincial financial crime investigation units and utilize specialized investigative personnel such as police intelligence teams to prevent damages from quasi-deposit-taking, pyramid schemes, and illegal private financing.
The prosecution will consider direct investigations of virtual asset-related crimes involving embezzlement, breach of trust, fraud, etc., with damage or gains exceeding 500 million won under the Specific Economic Crimes Act. Cases outside the scope of direct investigation will be referred to the police.
The Financial Supervisory Service will also provide rewards through the ‘Illegal Finance Paparazzi’ system to prevent quasi-deposit-taking damages. Going forward, the Financial Services Commission, Financial Supervisory Service, Office for Government Policy Coordination, Ministry of Justice, prosecution, and National Police Agency plan to share information obtained regarding virtual asset investment briefings and respond accordingly as needed.
Professor Jongin Lim of Korea University Graduate School of Information Security emphasized, "A typical investment scam tactic is to lure investors with virtual currencies that are not yet well known and have low prices, especially when virtual currency prices have risen significantly. It is necessary to use reputable virtual currency exchanges and make efforts to research information about the virtual currency you intend to invest in."
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