[Exclusive] Coin Scams Doubling Every Year... "They Hesitated After Being Promised Double in 6 Months"

[Chaos in Cryptocurrency]
337 Cases and 537 People Caught Last Year
Fake Cryptocurrencies Created to Deceive
Illegal Multi-Level Marketing After Raising Investment Funds
Paying Profits for 2-3 Months Then Disappearing

[Asia Economy Reporter Lee Gwan-joo] Cryptocurrency-related crimes in South Korea are divided into periods before and after the "cryptocurrency boom" that swept the nation in 2017. Although so-called "illegal multi-level marketing" type fraudulent fundraising crimes had existed before, cryptocurrencies became the main players in multi-level marketing and fraudulent fundraising scams after gaining widespread public attention during the boom.

In fact, since 2017, the number of police crackdowns and arrests related to illegal activities such as fraudulent fundraising using cryptocurrencies has more than doubled, showing a "doubling" trend. According to the "Cryptocurrency Arrest Records" obtained by Asia Economy from the National Police Agency on the 20th, the number of arrests increased from 62 cases in 2018 to 103 cases in 2019, and then to 337 cases last year, representing an average annual increase of 220%. During the same period, the number of people arrested also surged from 139 to 289, and then to 537. This indicates that even after the cryptocurrency craze gradually subsided due to various government regulations and price declines, continuous crimes exploiting cryptocurrencies occurred in the shadows. A police official analyzed, "As the perception that cryptocurrencies can generate money became widespread, crimes exploiting this naturally appeared. Fraud cases that deceive investors who lack understanding of cryptocurrency trading structures and value fluctuations by riding on public interest are on the rise."

These cryptocurrency-related illegal multi-level marketing and fraudulent fundraising cases tend to follow a somewhat "standardized" pattern. The "Hedge Bitcoin" case, considered the origin of cryptocurrency fraudulent fundraising with damages amounting to 150 billion KRW in 2015-2016, provides an easy example. The mastermind, Mr. A, was a fraudster who had previously embezzled 320 billion KRW through illegal telecommunications multi-level marketing schemes from 2003 to 2005, and the full details of the case were revealed when he was extradited from the Philippines to South Korea in 2018.

Mr. A applied the illegal multi-level marketing method directly to cryptocurrency, further evolving his tactics. He first established an online cryptocurrency exchange in the Philippines and created a fictitious cryptocurrency called "Hedge Bitcoin." He then opened 22 "investment centers" in urban areas such as Gangnam, Seoul, and held large-scale investment briefings promising "more than double returns in six months." The number of victims who fell for this reached 35,974, with damages totaling 155.2 billion KRW. This case remains the cryptocurrency fraudulent fundraising crime with the largest number of victims known to date.

Subsequent cryptocurrency fraud cases did not deviate from the framework of the Hedge Bitcoin case. Last year’s "Fake Chinese Major Corporation Cryptocurrency" case, which defrauded about 1,200 victims of 17 billion KRW, also involved promising high returns and deceiving investors by creating fake documents and holding business briefings. Since cryptocurrencies are merely digital information without physical form, creating plausible investment brochures or simulating active trading through unauthorized exchanges using "wash trading" is one of the main criminal tactics.

To prevent cryptocurrency fraud, thorough verification of the cryptocurrency in question is essential; however, since these operate outside the regulatory framework, cross-verification is difficult. Experts advise avoiding investments altogether when high returns are guaranteed or when investors are recruited through multi-level marketing schemes. Professor Lee Woong-hyuk of Konkuk University’s Department of Police Science stated, "Cryptocurrency fraudsters exploit investors’ ‘high risk, high return’ mentality when they have no suitable investment options. Most cryptocurrencies are difficult to verify for reliability, making them more prone to damage than typical multi-level marketing or fraudulent fundraising schemes." He added, "While individuals must be cautious, the government should proactively provide guidelines and measures to prevent damage based on actual occurrences."