'Geurim' Token Scam in the Market... Promising 20x Returns and Then Disappearing

Fraud Signs Detected in NFT Market
Struggling to Prove Damage Facts

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] This year, signs of fraud have been detected in the non-fungible token (NFT) market, which has been gaining attention in the art market. Victims lamented that they cannot verify the identity of the buyers and sellers of NFTs or the source of their funds. As interest in NFTs has recently increased and more people are investing, concerns are growing that fraud victims may emerge rapidly.

According to the industry on the 26th, K Group, which operates an NFT sales and marketing company, has been sued on charges including violation of the Act on the Aggravated Punishment of Specific Economic Crimes (fraud). NFTs refer to cryptocurrencies recorded with unique identification values as digital assets with scarcity.

They are accused of promising victim A in April this year that investing in NFTs would yield 8 to 20 times the return within three months but failed to return the investment. K Group sold H artist’s painting divided into 100 pieces, and each piece could be purchased for 5 Ethereum. At that time, the price of Ethereum was in the 3 million KRW range.

Victim A explained, "Along with cryptocurrency, I was told that NFTs are promising investment products, so I invested 15 Ethereum, totaling 45 million KRW. However, I have not received my money back, and the company has not responded at all, which is a confusing situation." Currently, the damages related to K Group include not only NFTs but also cases where investors did not receive profits from cryptocurrency investments operated by the group. The number of victims is estimated to be about 7,500.

The problem is that it is not easy to prove NFT-related damages. Since the NFT market trades using Ethereum cryptocurrency, transaction details can be checked through wallets, but it is difficult to intuitively identify who bought and sold. If the transaction went through one of the four major cryptocurrency exchanges (Upbit, Bithumb, Coinone, Korbit) that issue real-name accounts and operate customer verification systems (KYC), investigative support can be obtained from the exchange, but it is difficult to identify damages in peer-to-peer transactions.

Furthermore, because NFTs and cryptocurrencies themselves are unfamiliar to prosecutors, investigations are slow. Ko Hye-ryeon, head lawyer at the law firm ‘Hye,’ explained, "The content of this case itself is unfamiliar and complex, so the prosecution found it difficult to understand during the investigation," adding, "Especially from the perspective of the profit structure, it is not easy to understand." Many suspects are overseas, causing further difficulties in investigations. In fact, it has been confirmed that the chairman of K Group, the accused, has left Korea for a nearby Asian country.

Professor Hong Ki-hoon of Hongik University’s Department of Business Administration said, "In places like the United States where the NFT market gained popularity earlier, NFT-related fraud damages are known to be significant," and explained, "Currently, the NFT market is outside regulation and must rely solely on the goodwill of platforms for management, which is very risky."