[Exclusive][The Swamp of Bad Coins] Victims Turned Perpetrators into ‘Multi-Level Marketing’... Why Can't They File Complaints?

[Report on 316 Victims of Fraudulent Coins -<1>] Coin Hostage Fraud Victims
Damage Exceeds 4 Trillion Won by May
70,000 Defrauded but Only 130 Lawsuits
Rare Investigations Initiated by Complaints

[Asia Economy Reporters Koo Chae-eun and Gong Byung-sun] "Only some of the victims tend to file complaints, making it difficult to specify the number of victims."

As a result of joint coverage with the office of Yoon Chang-hyun, a member of the People Power Party, the police currently do not separately tally the number of complaints filed by cryptocurrency victims. The National Police Agency explained that this is because "only some cryptocurrency scam victims tend to give victim statements." Although the total amount of damage caused by cryptocurrency crimes reached 4.1615 trillion KRW as of May this year, one reason is that investigations rarely start from victim complaints.

◆Due to Multi-level Structure and Insiderization Trends = B (43), a victim of the Jubileace exchange scam who participated in an in-depth interview with this paper, said, "I was surprised that 'coin scams' are neither subject to the Capital Markets Act nor investor protection," adding, "I was unsure how to report it, so I ended up suing the exchange CEO for 'defamation'." C (55), a victim of the V Global exchange scam, also said, "I heard that a collective lawsuit for coins requires a 3.3% upfront fee of the damage amount, but since there is no legal concept of 'cryptocurrency,' the chances of winning are slim," and added, "elderly victims do not even acknowledge the 'scam' itself and are just waiting for the 'withdrawal ban' to be lifted."

In fact, the number of victims of the multi-level scam at V Global exchange is estimated by the police to be 69,000, but only 130 people, less than 1.8% of them, have initiated a class-action lawsuit. At Bitsonic, where a withdrawal ban scam occurred, 257 people registered their damage amounts in the victim community, but only about 15% (39 people) are pursuing a class-action lawsuit. The number of lawsuit participants compared to total victims at Tier One and Jubileace are 15% and 0.6%, respectively.

Experts believe that unlike stock market scams, the low number of criminal complaints and civil lawsuits in the coin market is due to the characteristics of multi-level structures and insiderization. Additionally, the regulatory gap with no legal status and investment patterns relying on private information from acquaintances rather than public disclosures are fundamental reasons that make it difficult to punish 'bad coins.' Attorney Ko Hye-ryeon, head of Law Firm Hye, said, "Because initial dividends are perceived as partial principal recovery, fraud charges do not hold, or due to the multi-level nature, victims inevitably become perpetrators, creating a vicious cycle seen in 'bad coin' scams." Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies said, "Because coin market regulations are lax, multi-level scams are concentrated in this market."

◆Many Only Know Partial Information = As a result, a significant number of bad coin scam victims have incorrect or partial information about the cryptocurrency market. Among 316 coin scam victims who responded to this paper’s survey, more than half, 54.7% (173 people), answered that they 'did not know' that cryptocurrencies are not defined as financial assets and therefore are not protected under the Capital Markets Act and financial consumer protection provisions. Those who answered 'knew' were 143 people (45.3%).

On the other hand, 200 people (63.3%) answered that they 'knew' that exchanges failing to register as businesses with the Financial Services Commission by September 24 under the Specific Financial Information Act must cease operations, which was higher than the 116 people (36.7%) who answered 'did not know.' Many exchanges are expected to obtain ISMS certification following the enforcement of the Specific Financial Information Act, but marketing encouraged buying coins before prices surged. D (33), a scam victim living in Seongnam, Gyeonggi Province, said, "Before the Specific Financial Information Act, they said they would complete real-name transactions, ISMS certification, and capital attraction in advance, but before that, they deceived people by saying the 300% profit accounts were closing soon and to quickly deposit money."

Jung Yoo-shin, dean of the Graduate School of Technology Management at Sogang University, who supervised this in-depth investigation, said, "Private cryptocurrencies still have uncertain exchange value, called fundamentals, with high volatility and many illegal activities," adding, "investors need to recognize these limitations and approach accordingly." Kim Bong-shin, senior director at Realmeter who advised on this survey, analyzed, "The fact that many scam victims did not realize they are not protected as investors suggests the need for financial education for sound investment."

Meanwhile, this survey was conducted by Asia Economy from the 1st to the 15th of this month, targeting 316 victims from a total of 12 cryptocurrency scam victim communities including Jubileace, V Global, and Bitsonic (assuming random sampling from an infinite population, the sampling error is ±5.5 percentage points at a 95% confidence level). The appropriateness of the survey questions was advised by the polling specialist organization Realmeter. This is the first time the media has backtracked and conducted an in-depth investigation into cryptocurrency scam victims who surged last year and this year.