Prosecution: "We Do Not Take Raised Suspicions Lightly"
Possibility of Applying Capital Markets Act Based on WEMIX's Securities Characteristics
The prosecution, investigating allegations of cryptocurrency-related misconduct involving independent lawmaker Kim Nam-guk, is expanding its investigation by seizing and searching Kim's bank accounts. Since key suspicions remain regarding the source of the cryptocurrency investment funds and potential money laundering, Kim's summons by the prosecution appears inevitable. It is reported that the prosecution is considering the timing of the summons.
According to legal circles on the 8th, the Seoul Southern District Prosecutors' Office stated the day before, "We have already conducted a seizure and search of the bank in connection with tracking Kim's accounts linked to cryptocurrency," adding, "We are steadily taking necessary steps to analyze the flow of Kim's cryptocurrency purchases and sales." The prosecution also emphasized, "We do not take lightly any suspicions raised by the media or political circles."
Last month on the 15th, the prosecution conducted seizure and searches of domestic cryptocurrency exchanges Upbit and Bithumb, as well as Kakao's blockchain affiliates. Around the same time, the prosecution also examined Kim's bank accounts, according to their explanation.
The necessity of seizing and searching Kim's bank accounts had already been raised. The Financial Intelligence Unit (FIU) handed over materials such as Kim's cryptocurrency transaction records to the prosecution due to suspicions of money laundering. The FIU judged an unusual transaction last January and February when Kim transferred approximately 850,000 WEMIX tokens from an Upbit cryptocurrency wallet to a Bithumb cryptocurrency wallet. It is known that the prosecution secured materials related to the source of the cryptocurrency investment funds and potential money laundering through the seizure and search of the bank.
The delayed disclosure of the bank seizure and search, unlike the cryptocurrency exchange raids, appears to be due to the "difference in gravity" related to the investigation. Unlike raiding cryptocurrency exchanges, examining the bank accounts involves tracking the cash flow of a sitting member of the National Assembly, which is a burden for the prosecution. Additionally, the search warrant for the cryptocurrency wallets was requested in late October and early November last year, providing sufficient justification.
Prosecution: "Summons timing needs to be appropriate"...Careful consideration on WEMIX's securities status
Legal circles view Kim's summons by the prosecution as a matter of timing rather than something that can be skipped. This is because Kim's explanation that he sold LG Display stocks worth 94,002,000 KRW and held deposits of 111,581,000 KRW as of 2021, and that he invested 1 billion KRW in cryptocurrency, does not add up. Furthermore, there are indications that he invested large sums in so-called "junk coins" such as BitTorrent, Mavrex, and MetaKongs besides WEMIX. A prosecution official said, "We have no specific plans regarding Kim's summons," but added, "Since Kim has expressed his position through social media (SNS), we cannot conduct a formal Q&A, but we need to consider an appropriate timing."
However, whether to apply charges for violations of the Capital Markets Act is expected to be decided based on the progress of the investigation. The search warrant issued on the 31st of last month did not include charges of violating the Capital Markets Act. After about 20 WEMIX investors filed complaints on the 11th of last month accusing Jang Hyun-guk, CEO of Wemade, of fraud and violations of the Capital Markets Act, the prosecution is reportedly assessing whether WEMIX qualifies as a "security."
According to the Capital Markets Act, when multiple people invest in another's business and face the risk of loss depending on the business outcome, it is considered a financial investment product. Among these, financial investment products where investors can lose the amount they invested are regarded as "securities." If the prosecution concludes that WEMIX is a cryptocurrency equivalent to securities, charges of violating the Capital Markets Act could also be applied to Kim. Violations of the Capital Markets Act can result in life imprisonment or imprisonment for five years or more.
A prosecution official said, "The WEMIX victims filed complaints against CEO Jang for fraud and fraudulent trading, presuming securities status, so we cannot avoid reviewing the securities status. In Kim's case, not only the source of purchase funds is important, but also how he invested large sums in relatively unknown cryptocurrencies, and the suspicions raised by Rep. Ha Tae-kyung's office, so we need to look at the entire process to clarify the suspicions."
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