Editor’s Note: This story has been updated to reflect comments from Coinbit, which denies wrongdoing, placing blame on a few rogue employees, who have since been dismissed. The exchange claims it is still operating normally.
Police in South Korea on Wednesday raided and seized the offices of Coinbit, the country’s third largest crypto exchange, over allegations it faked 99% of its trading volume.
According to a report from Seoul News, local police took control of Coinbit’s headquarters in Gangnam as well as other sites elsewhere.
Police accuse the exchange’s owner Choi Mo and other managers of “wash trading”. For about a year until May 2020, the process earned Coinbit 100 billion won ($84 million) in profit fraudulently, it said.
A wash trade is a form of market manipulation in which an investor simultaneously sells and buys the same financial asset to create misleading, artificial activity in the marketplace. It is illegal in most jurisdictions.
In the case of Coinbit, the exchange was functionally split into two operational accounts containing all user funds, say police. Fraud within the first account involved major cryptocurrencies bitcoin (BTC), ethereum (ETH), ripple (XRP), and tether (USDT), which Coinbit staff moved internally between “ghost accounts”.
The other account exclusively traded dubious altcoins and initial exchange offerings. The firm prevented transactions with outside exchanges so that the owner and management were able to control the supply of coins. Choi and his team allegedly manipulated this structure by trading large quantities of the listed crypto and then dumping them on unsuspecting retail traders.
However, in a statement to news.Bitcoin.com, Coinbit dismissed the allegations as “inappropriate”. The company blamed the illegal trading on “some employees with moral skepticism.” Coinbit said it had known about the illegal activities since last year and had reported the accused workers to the police.
“Coinbit has not committed any illegal acts so far and has not been suspended by this time. Noone, including Coinbit’s chairman, has been indicted or seized by the police on fraud charges,” said the exchange. “This case was a personal crime committed by some employees who had joined the company for their financial interests,” it added.
According to the newspaper report, authorities are also questioning the possibility of additional malpractice and embezzlement. The paper said it examined Coinbit’s books before alerting the police. It held off its report at the police’s request, but its investigations found discrepancies in the deposits and withdrawals of 99% of the trading volumes.
In April, South Korea’s Financial Supervisory Service refused to sign-off the exchange’s financial statements, which had not been externally audited. Coinbit had 252,000 visitors in the last three months and is only surpassed by Bithumb and Upbit in South Korea. Police investigations are ongoing. As South Korea drafts crypto laws, there is concern that more such seizures could follow.
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