[Legal Issue Check] What Liability Arises from Disposing of Erroneously Paid Bithumb Bitcoins?

Attention is focusing on what legal responsibility will be imposed on the winners in the "Bithumb Bitcoin Misallocation Incident" that occurred on the 6th, who disposed of the mistakenly allocated Bitcoin, converted it into cash or used it to purchase other coins, and then failed to return it.

The biggest point of interest is whether the winners who disposed of the misallocated Bitcoin could face criminal punishment. According to the legal community on the 10th, the prevailing view is that, under current law, it is difficult to establish the crimes of embezzlement or breach of trust. However, there are not a few legal experts who predict that the Supreme Court may change its position.

Focus on whether the Supreme Court will change its stance on embezzlement and breach of trust

The reason many believe it will be difficult to establish embezzlement or breach of trust is that, in a similar case in 2021, the Supreme Court denied the establishment of these crimes and rendered a not-guilty verdict. At that time, the prosecutor indicted the defendant on charges of embezzlement and breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes, but the Supreme Court found the defendant not guilty on all counts.

Embezzlement is a crime whose object is "property," but virtual currency cannot be regarded as a "tangible object." Unlike a "mistaken remittance" case involving a bank account, merely acquiring virtual currency does not readily allow it to be evaluated as having legal control over a specific amount of money corresponding to its market value at the time of the transaction.

The courts of first and second instance recognized the establishment of the crime of breach of trust. However, the Supreme Court held that "it cannot be viewed that a person who has received a transfer of virtual assets is in a position to preserve or manage the virtual assets on the basis of a relationship of trust," and therefore also found the defendant not guilty of breach of trust. At that time, the Supreme Court acknowledged that virtual assets are a type of "property benefit," but also stated that "they are not something that must be protected in the same way as legal currency."

A lawyer who previously served as a prosecutor said, "Given that a basic law on virtual assets has not yet been enacted, it appears that, in line with the existing Supreme Court precedent, it will be difficult to establish the crimes of embezzlement or breach of trust."

On the 8th, people were coming and going in front of the Bithumb Lounge Samsung branch in Gangnam District, Seoul. Photo by Yonhap News

On the other hand, there are also projections that, since many circumstances have changed compared with when the Supreme Court rendered its decision in the case that arose in 2018, the Court may overturn its precedent and recognize the establishment of embezzlement or breach of trust.

Kim Kidong, representative attorney at the law firm Robex and a former chief prosecutor, said, "When the Supreme Court precedent was issued, the financial authorities were still denying that virtual assets are financial products, but it seems difficult for that position to be maintained any longer."

Attorney Kim added, "The enactment of the Virtual Asset User Protection Act to move toward user protection can be seen as the government recognizing the property value of virtual assets," and continued, "The governments of the United States and Korea have now come to recognize virtual assets as an economic entity, and given that the Supreme Court recently issued a precedent recognizing virtual assets held by an exchange as subject to seizure, it should be seen that the likelihood of embezzlement or breach of trust being recognized has increased."

There is also an analysis that the crime of fraud could be established for winners who disposed of the misallocated Bitcoin to a third party. Even though no "property loss" occurs, because the counterparty has no obligation to return the Bitcoin it purchased, it is the Supreme Court's position that the establishment of fraud can nonetheless be recognized.

Obligation to return unjust enrichment... Issues over the subject of return and the point in time for calculating the amount of gain

Separately from this, there is little dispute that the winners will bear civil liability to return unjust enrichment. However, if the matter proceeds to actual litigation, what must be returned (the subject of return) and the point in time to be used as the basis for calculating the amount of unjust enrichment (the calculation time) are expected to become key issues.

In principle, unjust enrichment must be returned in its "original form," and if returning the original form is impossible, Article 747 of the Civil Act provides that its value must be returned. For this reason, the winners must return to Bithumb the same number of Bitcoin as were misallocated, and if they disposed of a portion of the Bitcoin and converted it into cash, they must repurchase Bitcoin and return it.

The problem arises when the price of Bitcoin differs between the time of misallocation and the time of return. If the price has risen, it is highly likely that the winners will have to bear the burden of the price difference.

On the previous day, Financial Supervisory Service Governor Lee Chanjin said, "Those who sold the Bitcoin and converted it into cash without checking with the exchange have incurred not only the obligation to return the original asset, but also an additional price difference."

Conversely, if the price of Bitcoin has fallen compared with the time of the erroneous allocation, the difference between the amount of cash originally obtained by selling the Bitcoin and the amount needed to repurchase the same quantity of Bitcoin may not be recognized as an amount the winners are obligated to return, leaving room for that difference to ultimately be retained as the winners' profit.