[Q&A] 5.5 Trillion Won Lost to Fraudulent Coin Scams: Methods and Countermeasures [The Swamp of Fraudulent Coins]

[Report on 316 Victims of Fraudulent Coins] Q&A Summary
Some Victims Remain Unaware Due to Early Dividends
Relying on Scam Exchanges for Information Creates a Vicious Cycle
Quick Reporting and Class Actions Are Advantageous

An employee is checking cryptocurrency prices at Bithumb Gangnam Customer Center in Gangnam-gu, Seoul. Photo is unrelated to the article content / Photo by Yonhap News

[Asia Economy reporters Koo Chae-eun and Gong Byung-sun] Starting June 23, Asia Economy launched a special report series titled "The Swamp of Fraudulent Coins" (316 Victims of Fraudulent Coins Report). The series exposed the reality of fraudulent coins, where withdrawal bans, multi-level marketing schemes, price manipulation, and false disclosures have been rampant by exploiting the lawless state of the cryptocurrency market. Over the past five years, such fraudulent coin scams have caused astronomical losses totaling 5.5 trillion won. This is why there are warnings that this could become "the next Sea Story" scandal.

To hear directly from victims of fraudulent coin scams, we reached out to 12 victim communities and requested their cooperation for interviews. We sent survey requests to 12 communities affected by withdrawal bans and multi-level marketing scams, including V Global, Bitsonic, Jubilee Ace, and Tier One, which are currently under police investigation. From June 1 to 15, a total of 316 victims responded to our survey. Among them, 23 victims who expressed willingness to speak with reporters participated in in-depth interviews. We published the results of these investigations, along with policy responses and solutions, as a series of articles. Follow-up coverage has also continued.

Immediately after publication, many reader comments argued that investing in the altcoin market, with its high volatility and lack of investor protection, was a mistake and that the victims themselves were to blame. Some said that, since the scams resulted from a "get-rich-quick" mentality, there was no need to protect the victims. In response, we interviewed scam victims again to hear their thoughts on this perspective and reported their views in an article titled "[What Do You Think?] Are 'Coin Bugs' to Blame for Chasing Quick Riches?"

Many of the victims we met had invested small amounts, were unaware they had been scammed, or trusted exchange insiders due to early dividend payments, only to suffer losses later. Fraudulent coin scam rings exploited these situations to commit illegal acts such as unauthorized fundraising, exit scams, multi-level marketing, and price manipulation, and would even open new exchanges to reissue their coins.

Based on our coverage, we have summarized the realities, methods, countermeasures, and personal response strategies regarding fraudulent coin scams in a Q&A format.

Q. Why do fraudulent coin scams keep happening?

A. What are called virtual currencies, coins, or cryptocurrencies, in reality, do not have a clear legal status under current law. They are not treated as "financial assets" like stocks, so they are not protected by the Capital Markets Act. This also applies to so-called "exchanges." Although the term "exchange" suggests a sense of public oversight and management, this is not the case. Many exchanges do not separate client deposits from company funds, use investor money as their own, fail to make accurate disclosures, and attract investors with unverified information. As a result, sudden withdrawal and sale bans, unauthorized fundraising in the form of multi-level marketing, and price manipulation scams have occurred.

Q. What kind of people fall victim to coin scams?

A. According to our survey of 316 victims of fraudulent coin scams, the average age of victims was about 43, and the average financial loss was 80.9 million won. By occupation, 35.1% (111 people) were in office or management positions, 22.5% (71 people) were self-employed, 16.1% (51 people) worked in sales, service, or manual labor. Other respondents included homemakers (9.5%, 30 people), the unemployed (3.8%, 12 people), full-time investors (2.2%, 7 people), and students (1.9%, 6 people).

Q. The proportion of self-employed victims stands out.

A. That's correct. Self-employed individuals accounted for 22.5% (71 people) of coin scam victims. Scams targeting the self-employed often promoted coins by claiming, "We issue XX Pay, which can be used to settle transactions in the market." Most of these victims were too busy with their livelihoods to publicize their losses or respond effectively. Unfortunately, many had also suffered direct financial hits from the COVID-19 pandemic. Among the 71 self-employed cryptocurrency scam victims who responded to our survey, 77.5% (55 people) said their assets had decreased due to COVID-19.

Q. How do fraudulent coin scams typically occur?

A. Most fraudulent coin scams follow a pattern: ① Victims are lured into investing in fraudulent coins through acquaintances. ② They are reassured by regular dividend payments. ③ Suddenly, withdrawals and sales are blocked. ④ Victims are contacted and asked to cooperate with account transfers. During this process, a "promotion" is held to exchange "XX Coin" for "YY Coin." ⑤ The company and coin names are changed. ⑥ The scam ring expands its operations through recruiters. The early dividend payments essentially serve as bait, tricking victims into falling for the scam.

Q. Aren't victims also responsible for investing in coins, especially altcoins, which are highly volatile and lack investor protection?

A. Many readers expressed this view, so we asked the victims directly. One victim argued that, while investing in risky assets like altcoins in a low interest rate and asset bubble environment is a personal choice, the lack of even minimal institutional safeguards-such as the separation of investor funds-makes "exit scams" a structural problem. Some said they had no choice but to fall for the scammers, who lured them with promises of "principal protection and high returns" in an era of ultra-low interest rates, using dividends as bait. Others pointed out that inadequate regulatory oversight allowed exchanges engaged in unauthorized fundraising to operate.

Our reporting team also believes that the fraudulent coin scam problem is less about "individual greed" or a "get-rich-quick mentality" and more about the interplay of regulatory gaps, prolonged low interest rates, widening asset gaps, and insufficient oversight by supervisory authorities. Claims that "victims are just too greedy" do not help solve the problem of fraudulent coin scams. Experts point out that, since it is impossible to catch up with rising home prices through earned income alone, terms like "lightning poor" have become popular, and that deepening polarization and economic stagnation are among the reasons for the proliferation of fraudulent coin scams.

Q. Were there any notable findings in the survey of 316 scam victims?

A. One significant finding was that a large proportion of victims said they would invest in cryptocurrencies again. Of the 316 respondents, 57% (180 people) said they would reinvest, while 43% (136 people) said they would not. Given the survey's margin of error-±5.5 percentage points at a 95% confidence level for a random sample from an infinite population-the 14 percentage point difference is statistically significant. The fact that more than half of the victims expressed willingness to reinvest, even after suffering from withdrawal bans and multi-level scams, suggests a continued appetite for high-risk, high-return investments in a low interest rate era. However, it also implies that, if regulatory gaps and insufficient oversight persist, more victims could emerge in the future.

Q. It's surprising that more than half (63.3%) of scam victims said they knew that exchanges failing to register with the Financial Services Commission by September 24 under the Specific Financial Information Act would have to shut down.

A. This contrasts with the response that "I did not know I would not be protected as an investor" (54.7%, 173 people). However, several victims we interviewed in depth said that many fraudulent coin exchanges marketed their coins by claiming prices would surge when the new law took effect, urging investors to buy before then. There were many cases of exaggerated and false advertising, such as "We already have real-name accounts and ISMS certification, but 300% profit accounts will close before then, so invest quickly." As a result, many scam victims were aware of the new law, even if they did not fully understand its implications.

Q. Some of these scams are incredibly elaborate.

A. That is true. With so many exchanges facing police complaints for withdrawal delays and multi-level marketing, new types of scams have continued to emerge. Some scammers offered Zoom lectures on financial education, fostered a cult-like sense of belonging, and encouraged absolute faith in their coins. Even when company executives or operators were arrested, they would still urge victims to "wait and not lose faith." In some blatant multi-level scams, recruiters demanded lists of acquaintances struggling financially or desperate to become wealthy, and only those who passed a screening process could join.

Q. This is serious. How do scam victims initially decide to invest and where do they get their information?

A. Among the 316 scam victims surveyed, 49.1% (158 people) said they obtained information through portals, online communities, or group chat rooms. The problem is that these spaces are often infiltrated by scam ringleaders, recruiters, and middle managers who spread distorted information. As a result, many victims held misconceptions. More than half (54.7%, 173 people) did not know that cryptocurrencies are not defined as financial assets and therefore do not receive investor protection.

Q. Is it difficult for scam victims to recover their losses?

A. Not necessarily. Victims can file civil lawsuits and criminal complaints against exchanges that issued fraudulent coins. If the exchange or company has an official account, it can be provisionally seized, allowing victims to recover some of their principal in cases of withdrawal bans or exit scams. Scammers often try to settle out of court, offering to return part of the principal to avoid arrest. In many cases, settlements are reached after sending a certified letter. Experts advise that, if withdrawals are banned or delayed, it is important to respond quickly with legal action, as it is unlikely the exchange will return to normal operations.

Q. If a victim has already received dividends or capital gains, isn't it difficult to prove they were scammed?

A. Yes, that's correct. That is why swift legal action is crucial once a fraudulent coin or exchange scam is discovered. If victims remain with the scam exchange and receive a certain amount of dividends, it may be interpreted as partial recovery of the principal, making it harder to prosecute for fraud. As soon as withdrawal delays or bans are recognized as a scam, victims should send a certified letter and act quickly.

Q. Legal costs must be a burden for many victims.

A. This is why class action lawsuits are recommended. According to legal professionals, attorney retainer fees for fraudulent coin scam cases are typically set at 3.3-5.5% of the loss amount. For a loss of 100 million won, the fee would be 3.3-5.5 million won. However, in class action suits, the retainer fee per person can drop to as low as 0.5-3.0%.

Q. It seems that new laws and regulations are also necessary.

A. There is growing recognition in the National Assembly of the need for laws to regulate virtual assets and cryptocurrencies. Currently, several bills are being proposed, including the Democratic Party's Virtual Asset Business Act (proposed by Lee Yong-woo), the Virtual Asset Industry Act (proposed by Kim Byung-wook), and the Virtual Asset Trading Act (proposed by Yang Kyung-sook), among others. These bills commonly require exchanges to publish white papers disclosing and verifying the details of the coins they issue, mandate the separation of investor funds, and strengthen the supervisory powers of agencies like the Financial Services Commission.

Q. But if these laws pass, isn't there a risk of encouraging cryptocurrency investment and fueling a speculative frenzy?

A. Such concerns do exist. However, there is a growing consensus that it is more important to recognize the reality of the virtual asset and cryptocurrency market and to establish rules and ensure market soundness. As of May, there were 5.873 million cryptocurrency investors in Korea, and the daily trading volume at the four largest exchanges approached 14 trillion won-nearly matching the 15.1 trillion won daily trading volume of the KOSPI. Since this is a real, active market, most agree that at least minimal oversight is necessary. Experts also point out that no one can predict how the market will change once regulations and oversight are in place.

Q. How can investors distinguish between fraudulent and legitimate coins, or between fraudulent and legitimate exchanges?

A. Under the Specific Financial Information Act, virtual asset businesses must file a registration with the Financial Intelligence Unit (FIU) of the Financial Services Commission by September 24. This registration requires an Information Security Management System (ISMS) certificate and a real-name deposit/withdrawal account confirmation from a bank. The government publishes the status of registration applications and approvals on the FIU website, and ISMS certification status can be checked on the Korea Internet & Security Agency (KISA) website. It is advisable to consult both websites for reference.