DESCRIPTION OF EVENTS
"Korea's leading cryptocurrency exchange - [Komid] will not only provide a smooth trading system, but also create the most secure exchange."
"Komid Co., Ltd. Representative: Choi Woo-hyuk 05510 The Sharp Star Park Building A, 4th floor, 10 Olympic-ro 35ga-gil, Songpa-gu, Seoul 05510 Business registration number: 449-86-00761"
"[A] new standard for cryptocurrency exchanges. Start convenient and secure trading on an exchange that prioritizes user asset protection."
"Choi, the court found, made a number of fake accounts on the exchange in January 2018, and, using a trading bot, made millions of false transactions with cryptocurrency and Korean won credit that did not actually exist."
"Choi and Park allegedly created five accounts through which they were able to fabricate 5 million transactions. According to the court documents, the faked volume deceived both investors and new users, which led to Choi and Park earning about $45 million in fees."
"The fakery was reportedly designed to give investors a false sense of liquidity and action on the exchange."
"Authorities arrested two men behind Komid who were scamming investors from the start. Their scheme entailed luring customers to cryptocurrencies, and disseminating false information about token listings." "According to a report from CoinDesk Korea, the firm's CEO Hyunsuk Choi received a three-year sentence for his role in the crime, as well as for embezzlement. Another member of the team, Park Mo, got two years, according to local news source Blockinpress." "Prosecutors claim the two created crypto trading accounts under false names and using specialized bot software to generate 50 billion won in wash trades on Komid and, “automatically create large orders to attract customers.”"
"On [January] 17th, the 13th Criminal Settlement Division of the Seoul Southern District Court (Chief Judge Ahn Seong-joon) sentenced Komid CEO Mo Choi to three years in prison and executive director Mo Park to two years in prison, who were charged with forgery, fraud, embezzlement, and breach of trust in electronic records. . Choi has been arrested in court." "Komid Choi has reportedly been sentenced in Seoul to three year’s imprisonment for fraud and embezzlement, and an accomplice, Park Mo, has been sentenced to two years." "Korean authorities sentenced two executives at Komid, a South Korean cryptocurrency exchange, to jail terms on January 17 for their role "in orchestrating fraudulent trading volume" as reported by Blockinpress. CEO Hyunsuk Choi received 3 years another executive, named Park, received 2 years."
"The judge claimed the accused said Korean financial authorities were remiss in not stopping his behaviour." “Mr. Choi has repeatedly committed fraud against a large number of victims in an unspecified amount of time.” “The accused has been responsible for blaming the financial authorities and not regretting the mistake.”
"The court discovered that Choi has had a number of fake accounts on the exchange in January 2018 and was using a trading bot to make millions of false transactions with cryptocurrency and Korean won credit, that in reality did not actually exist." "The court presided over by South Korea’s top judge Ahn Seong-joon, also concluded that Choi transferred bitcoin from the exchange to an external wallet." "In fact, they have deceived investors as if they were operating normally without having that much capital or cryptocurrency."
"However, Edaily has highlighted that the judge considered the fact that the harm was minimal as some portion of funds were returned. Furthermore, the judge noticed that “the defendants did not appear to have committed a crime with strong fraudulent intentions.”"
"Choi has committed fraud for a countless number of victims for a long period of time ... Futhermore, he holds the financial authorities responsible for failing to keep track of the industry better." "The court – presided over by South Korea's top judge Ahn Seong-joon – also ruled that Choi had transferred bitcoin from the exchange to an external wallet, said CoinDesk Korea."
"The judge said that "the crime has damaged customers’ confidence in the virtual currency exchange and has had a negative effect on the domestic virtual currency trading market." This was the first time that a cryptocurrency exchange executive received jail time for faking volume. Wash trading, the creation of artificial trading activity, is a common practice in the cryptocurrency space."
The Komid cryptocurrency exchange misled investors into believing their service was highly popular when it wasn't, created fake assets, and took funds from investors into personal wallets.
The website displayed a 403 error starting in January 2019. Two lead executives from the exchange have each received prison sentences for their role in what happened.
While this case did involve wash trading, this is likely not the reason for the jail time. Rather, the jail time likely results from stealing investor assets and creating false platform assets on purpose.
HOW COULD THIS HAVE BEEN PREVENTED?
The primary issue came from the lack of accountability to customer assets, which posed the risk of loss to investors, and transformed the platform into a form of ponzi scheme.
While the executives should take personal responsibility for their actions, they are correct that without enforcing transparency and accountability, such fraud will continue to happen.
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