[The Dark Side of Cryptocurrency Revealed in Court ] "Is Selling Mining Rights a Violation of Door-to-Door Sales Act? Has There Been Any Precedent?" the Judge Asked

89 Billion Won Fraud Under the Pretext of Mining Rights Sale
Prosecuted for Violation of Door-to-Door Sales Act
Judge: "Application Unclear Due to Virtual World"

Five Years After First Ruling at Suwon District Court
Various Types Like Exaggeration and Recommendations
No Basic Definition for Regulation

[Asia Economy reporters Seongpil Cho and Daehyun Kim] "I don't know if there is any precedent for punishment."

On the 11th of this month, in a courtroom on the 5th floor of the West Building of the Seoul Central District Court, a series of criminal trials for defendants were underway, and a man who appeared to be in his 60s was called. The charge was violation of the Door-to-Door Sales Act. He was accused of working as a door-to-door salesperson at a multi-level marketing cryptocurrency mining company and embezzling a total of about 8.9 billion KRW from numerous victims under the pretext of selling mining rights. The prosecution viewed the cryptocurrency mining rights sold through multi-level marketing as goods under the Door-to-Door Sales Act and indicted the man for violating the Act on Door-to-Door Sales, etc. After carefully reviewing the documents detailing his criminal acts, the judge said, "If the sale of mining rights took place in a kind of virtual world, I wonder whether this can be considered goods or services under the Door-to-Door Sales Act. Prosecutors, please examine whether there is any precedent for punishing this." Then he added, "I don't think we can proceed further today," and concluded the trial.

◆The first appearance of cryptocurrency fraud crimes = The term "cryptocurrency fraud" first appeared in our court criminal trials in 2016. It was a case involving Mr. A, the head of a multi-level marketing private company who deceived investors by promising high returns on cryptocurrency investments and pocketed a large amount of investment funds. He was arrested and prosecuted on charges of fraud and violation of the Door-to-Door Sales Act. Mr. A was accused of deceiving an unspecified large number of investors recruited through dozens of membership recruitment centers nationwide from December 2015 to June 2016 by claiming, "Cryptocurrency is popular, so if you invest in H Bitcoin, you can earn more than double the profit," and collecting 37.344 billion KRW. The H Bitcoin used in Mr. A's scam was found to be a fake cryptocurrency imitating those used in multi-level marketing scams in the market, existing only as numerical data in the computer system and unusable.

The court found Mr. A guilty and sentenced him to 3 years and 6 months in prison. At that time, the court stated, "Using a multi-level marketing-like organization, he sold cryptocurrency that had no real value guaranteed and collected over 37 billion KRW in investment funds from many victims, and the secondary damage caused is expected to be serious, so he must be held strictly accountable." This case was heard and judged by Jeon Dae-gyu, currently the chief judge of the Seoul Rehabilitation Court. He said, "It was the first domestic ruling related to cryptocurrency fraud," and "At that time, the concept of cryptocurrency was unfamiliar, but I remember being surprised by the huge amount of fraud money."

◆Cryptocurrency crimes are still evolving = Five years after the first ruling, cryptocurrency fraud has become both a familiar and unfamiliar term in court. The legal concept of cryptocurrency itself is ambiguous, and related crimes are rapidly evolving, causing confusion in the courtroom. Due to the diversification of methods, the Ministry of Justice and the Supreme Prosecutors' Office have not even been able to produce related statistics. A Ministry of Justice official said, "Cryptocurrency-related crimes vary depending on specific acts such as investment fraud, illegal multi-level marketing and quasi-deposit schemes, money laundering, and concealment of criminal proceeds," but added, "We are not collecting specific data." A Supreme Prosecutors' Office official also said, "We do not separately compile or manage related statistics."

The legal community believes that insufficient laws and systems are exacerbating the confusion. Seung Jae-hyun, a research fellow at the Korea Institute of Criminology and Justice, said, "If exchanges are created and proceeds from related crimes are confiscated and seized, and cryptocurrencies clearly exist in the real world, then creating a 'Cryptocurrency Regulation Act' to regulate these cryptocurrencies is most important," but he also pointed out, "Under the principle of legality, discussions must come together to determine what issues are related to cryptocurrency and what is illegal, but currently there is no clear perspective on how to view this." He added, "Cryptocurrency has already become the dream of young people, with its market capitalization rivaling the KOSPI, so now the issue is how to achieve a soft landing," and said, "It is time for serious discussions on how the state will protect victims and what form of regulation will be implemented to prevent harm."