[2022 National Audit] "Special Investigation for Luna Incident"… Dunamu and Bithumb 'Under Fire' (Comprehensive)

Ruling and Opposition Parties

[Image source=Yonhap News]

[Asia Economy Reporters Ji Yeon-jin and Lee Jung-yoon] On the 6th, during the National Assembly's National Audit of the Financial Services Commission by the Political Affairs Committee, intense criticism focused on virtual asset issues, including the Terra Luna incident. In particular, Upbit, the virtual asset exchange that listed Luna Coin, faced intense questioning from ruling and opposition lawmakers over allegations of self-listing due to its operator Dunamu's subsidiary investing in Luna Coin, as well as suspicions of price manipulation of coins alongside Bithumb.

On the same day, Yoon Chang-hyun, a member of the People Power Party, revealed the prosecution's indictment against Song Chi-hyung, chairman of Dunamu, and other executives, asking, "Upbit's fake orders, wash trading, bait orders, account creation, and false cryptocurrency deposits involve large amounts of wash trading," and questioned, "Did such activities actually occur?"

Yoon Chang-hyun: "Song Chi-hyung, chairman of Dunamu, embezzled 149.2 billion KRW through wash trading and investment funds"

The prosecution stated in the indictment that Chairman Song and others "submitted fake orders worth approximately 254.5383 trillion KRW over 25,223,235 times, executed so-called fraudulent transactions amounting to about 1.8817 trillion KRW over 1,348,237 times, and embezzled 149.2 billion KRW from 26,058 Upbit members who were victims by selling a total of 11,549 Bitcoins, including 14.91 million KRW in proceeds and 7.4 billion KRW in transaction fees."

In response, Lee Seok-woo, CEO of Dunamu, said, "This is an ongoing trial, and the content is the prosecution's claim," adding, "We were acquitted in the first trial, and since the second trial is currently underway, it is difficult to respond here." He further stated, "(The) first trial judgment document shows that the prosecution failed to prove guilt on fraud charges."

Allegations also arose that Upbit self-listed Luna, the coin that crashed in May. Yoon Sang-hyun, a member of the People Power Party, pointed out that Dunamu Partners, a subsidiary of Dunamu which owns Upbit, invested in 63.5% of the initial shares issued for Luna Coin, earning a profit of 130 billion KRW, and that Luna's listing on the Bitcoin market was a 'self-listing.'

Yoon also criticized Upbit for listing Luna only on the Bitcoin market rather than the Korean won market, suggesting that Upbit knew about Luna's insolvency in advance. In response, CEO Lee Seok-woo said, "(Self-listing) has a potential conflict of interest."

Regarding Bithumb, questions poured in about major shareholder risks due to its complex ownership structure and suspicions of price manipulation of Arowana, known as the 'Hancom Coin.'

"If Bithumb's investment destinations collapse, it will face a management crisis... Investors cannot be protected if the exchange goes bankrupt"

Kim Sung-joo, a member of the National Assembly, raised concerns about a possible management dispute between the Initial Line, which follows the ownership chain 'Vidente → Inbiogen → Bucket Studio → Initial 1 & 2 Investment Associations,' and the former Bithumb CEO Lee Jung-hoon line. Kim emphasized, "If even one of the investment destinations collapses, both Bithumb Korea and Bithumb Holdings could face a management crisis," adding, "If the exchange goes bankrupt, investors practically cannot receive compensation, and funds deposited in the exchange are not covered by the Depositor Protection Act, so they cannot be protected."

Min Byung-duk, a member of the Democratic Party, summoned Park Jin-hong, former CEO of X-Tock and issuer of Arowana Coin, as a witness to intensively question whether the coin was colluded with the exchange Bithumb during the listing process and whether price manipulation occurred. Arowana Coin's price surged more than 1,000 times from 50 KRW to 53,800 KRW within 30 minutes of its listing on Bithumb in April last year, raising suspicions of price manipulation.

This coin is a virtual asset usable on the digital gold platform Arowana and is known to investors as the 'Hancom Token.' Hancom With, a KOSDAQ-listed affiliate of the Hancom Group, disclosed that it invested in the Arowana Token issuer (Arowana Tech) through its Singapore subsidiary (Hancom Singapore).

However, suspicions arose that Kim Sang-chul, chairman of Hancom Group, was the actual owner of the Arowana Coin issuer and that he attempted to create slush funds through Arowana Coin, prompting a police investigation.

Min urged, "The financial authorities are neglecting the suspicions that Hancom created slush funds through Arowana Coin," and called for a "special audit of Bithumb." Committee Chair Kim Joo-hyun said regarding the Hancom slush fund suspicions related to Arowana Coin, "We will consider whether this can be seen as illegal fund transactions."

Kim also said, "There is consensus on the need to improve the virtual asset system," adding, "Internally, we are preparing legislation through a June task force, but since it takes a lot of time and there are 14 bills related to virtual assets in the National Assembly, if discussions proceed quickly, it is necessary to legally supplement any loopholes in the two main pillars of illegal fund transactions: the Financial Intelligence Unit (FIU) and investigative agencies."

Meanwhile, the Political Affairs Committee issued a summons order for former Bithumb CEO Lee Jung-hoon, who was selected as a witness for the audit but did not attend. Committee Chair Baek Hye-ryun explained, "This measure is to order Lee Jung-hoon, who submitted a notice of absence, to accompany us to the National Audit venue before the audit ends today."

[Image source=Yonhap News]

Former CEO Lee submitted a notice of absence to the Political Affairs Committee members last month, stating, "Due to health issues and criminal litigation, it is difficult to attend as a witness for the audit on the 6th." He added, "Since 2020, I have been diagnosed with severe depression and panic disorder. I have been unable to engage in normal activities such as meeting outsiders and have long since stepped down from management."