[Exclusive] 6 Trillion Won Damage and 20,000 Victims in 5 Years... Fraud Paradise Created by Speculative Trading, SNS Powerhouse, and System Loopholes [Coin Fraud Republic]

Special Project <Coin Fraud Republic - They Were Meticulous>

①-⑵ 'ICC·RNDX' Coin Fraud Case: One Month of Tracking
Coin Fraud Losses Total 6 Trillion Won Over 5 Years
Number of Victims Increased Sevenfold in 5 Years
Combined with Multi-Level Marketing Organizations... Methods Becoming More Sophisticated

"Many lives have been ruined by virtual asset (coin) investment scams. If this continues, the national economy will suffer severely from coin scams."

Mr. Kim Seong-yong (pseudonym), in his 70s, who responded to an interview with Asia Economy, is a victim of the 'Inter Coin Capital' scam case. He invested 280 million KRW in June 2019 and did not recover a single penny. This is why, at the age of 75, he still cannot stop working. Mr. Kim clicked his tongue, naming South Korea a 'Republic of Scams.' He lamented that the multi-level coin scam, which started in the Teheran-ro area of Gangnam-gu, Seoul, has extended beyond Korea to Japan, constantly targeting the pockets of ordinary people.

Mr. Jo, who is on trial for the ICC case, is holding an investment briefing at the Jeju Saemaeul Geumgo Training Center in September 2019.
[Photo provided by ICC Victims Association]

Coin Scam Organization Extending Overseas...Victims Committing Suicide and Cancer Recurrence

The Asia Economy special investigation team wanted to verify whether Mr. Kim's statements were grounded in reality. To examine the actual state of coin scams, they conducted a month-long investigative follow-up on the 'Inter Coin Capital (ICC) and RNDX Coin' scam cases. They met with over 20 victims related to the cases and interviewed scam participants, whistleblowers, and virtual asset industry insiders to conduct in-depth coverage of the scam organization's online and offline sales methods, organizational structure, and damage status.

The investigation revealed that coin scams were systematically spread nationwide. The scam methods were cunning and meticulous. According to Asia Economy's findings on ICC's scam tactics: investments were induced through recruiters in Seoul and other regions → victims were reassured by showing returns and dividends recorded in electronic wallets → promotions were conducted to encourage further investment using high returns and high dividends as bait → large-scale investment briefings and first-anniversary events were held → suddenly, the website and electronic wallets were shut down → the headquarters denied responsibility.

Attorney Shin Eon-yong of the law firm KCL, who handled the ICC case, said, "The headquarters abroad closed the site and electronic wallets and calmed victims by telling them to wait, but even after five years, they did not return the invested funds." He added, "When lawsuits proceeded later, they claimed to be victims themselves and tried to shift responsibility."

Since sales points were established nationwide and something was sold, the sales organization adopted a multi-level marketing method. The scam organization created sales offices nationwide, including Seoul, and dispatched recruiters. Investor attraction occurred simultaneously online and offline. In particular, social networking services (SNS) such as Naver Band, which anyone can create and join, were aggressively utilized. The victim group of 'FVP Trade,' which caused damage worth hundreds of billions of KRW, stated, "FVP created 57 Naver Bands to lure investors simultaneously for recruitment."

Police Lieutenant Oh Tae-seok of the Economic Crime Investigation Division at the National Police Agency explained, "Since the coin investment boom began in 2020, coin investment-related crimes have been continuously occurring. In the past, scams often involved offline briefings and face-to-face meetings with victims, but recently, scams using online means such as Naver Band and KakaoTalk SNS have increased, resulting in a surge of scam victims not only in the metropolitan area but nationwide."

According to data received by Asia Economy on the 15th from Kim Jae-seop, a member of the People Power Party, the amount of damage caused by illegal virtual asset activities over the past five years from 2019 to last year was 6.1663 trillion KRW, with 18,236 victims. The largest annual damage was in 2021, at 3.1282 trillion KRW, coinciding with the asset market boom and the V Global case, which caused about 2.4 trillion KRW in damage. Except for 2021, when the V Global case occurred, the number of victims has been increasing annually. The number of coin scam victims rose sharply from 597 in 2019 to 4,377 last year.

There is also a non-face-to-face method that enables secretive sales. The 'RNDX Coin' scam led by the L Investment Group is a representative example. There, salespeople in their early to mid-20s, just graduated from high school, disguised themselves as 'a father of three siblings' to sell worthless coins. The headquarters provided young salespeople with burner phones, aliases, and sales scripts. They showed the movie 'Tazza' and whispered, "Victims would lose money elsewhere anyway, so it's better for them if we take less."

While the scam organization expanded its influence nationwide and carried out fraudulent acts, victims were helpless. They lost money, and friends and family turned their backs. Victims who even borrowed money from acquaintances suffered from guilt and extreme stress, leading to cancer recurrence. Five ICC victims took their own lives. To recover even the principal, victims sued Mr. Jo, the head of ICC Korea, and sent petitions to the courts and the National Police Agency, but nothing changed.

"Because many victims are in despair or afraid their families will find out, less than 1% of all victims participated in lawsuits," said Mr. Oh Young-sik (pseudonym), the representative of ICC victims, expressing regret over the situation.

Mr. Jo delayed trials by repeatedly changing lawyers to wear out the victims. The case where 306 people, including Mr. Oh, sued 23 defendants, including Mr. Jo, in 2022 is still in the first trial stage.

Victims Become Perpetrators...Proving Fraud Is Not Easy

It is difficult to hold multi-level coin scams accountable in civil and criminal law. Due to the nature of multi-level marketing, the boundary between victims and perpetrators is blurred, making it hard to clearly distinguish between them. Victims sometimes unintentionally become perpetrators by introducing acquaintances or relatives. Some victims are swayed by the scam organization’s persuasion. Because legal remedies involve financial burdens and take a long time, victims often choose to settle with perpetrators or recover part of their principal. As a result, fraud charges are not established or are difficult to prosecute, allowing coin scams to persist.

Asia Economy analyzed 162 confirmed first and second trial verdicts related to coin and multi-level marketing cases over about three and a half years from 2021 to recently, which clearly shows this fact. Among 297 defendants, only 88 (39%) received prison sentences. More than half were either acquitted or received suspended sentences.

The multi-level nature, where multiple people participate in the scam operation, is also a reason why coin scam crimes repeat. Even if the police catch the ringleader, those in the lower organization commit similar scams again. Conspirators learn the scam methods and become main perpetrators, reproducing scam damage. For example, while those named as defendants in ICC-related complaints were under non-custodial investigation, they established virtual corporations such as FVP, UEZ, and OPIX and repeatedly committed scam crimes using similar methods.

Internet Powerhouse Korea, Advantageous for Coin Scams...Light Punishments Increase Recidivism Risk

The complexity of blockchain technology, which underpins virtual assets, also raises the bar for investigations. In the early 2020s, many cases were dismissed by investigative authorities even after victim reports, for this reason. The head of 'Victim Relief Helper,' which has assisted over 1,000 stock and virtual asset scam victims since 2020, recalled, "Even cases that were prosecuted by the prosecution received dismissal decisions nearly 20 times. It was a truly difficult process for everyone."

The domestic virtual asset market’s unique characteristics are a background for the prevalence of coin scams in Korea. As of the second half of last year, the number of domestic virtual asset users reached 6.45 million. This is about half the number of stock investors (14 million), meaning many people have a low psychological barrier to speculative coin trading.

Also, the domestic SNS environment favors coin scams. Korea has more mobile phone subscribers than the U.S., China, and the U.K. Moreover, the SNS mainly used are specialized for communication. This means there is a higher chance of exposure to investment scams online. This is why coin scams using multi-level marketing methods under the pretext of 'investment' repeatedly appear.

There are also systemic issues. Coin scams are generally prosecuted under the Act on the Regulation of Conducting Fund-Raising Business Without Permission (similar to the Unauthorized Fundraising Act) and general fraud charges. The Unauthorized Fundraising Act carries a maximum sentence of only five years, and if high returns are promised instead of principal guarantees, only fraud charges apply. Fraud charges require victims to prove deception. During legal disputes, 'coin scammers' often receive acquittals or light punishments. This means coin scams are difficult to eradicate.

We plan to conduct in-depth investigative reporting on 'virtual asset investment scams.' We will strive to establish comprehensive countermeasures to eradicate coin crimes. Please send tips to lsa@asiae.co.kr. We will investigate thoroughly and report.

▲Team Leader Lee Seon-ae, Manager △Reporters Kim Min-young, Cha Min-young, Kim Dae-hyun, Hwang Yoon-joo