In the latest crackdown against cryptocurrency fraud, the CEO of cryptocurrency exchange Bitsonic has earned himself 7 years in jail for fraud involving over $7.5 million of investors’ funds. However, the chief executive will not be going down the hole alone. His Chief Technical Officer will also be serving a jail term alongside him for being an accomplice in the fraudulent enterprise.
The two top executives of the South Korean crypto exchange have reportedly bagged a combined jail sentence of 8 years for defrauding investors of 10 billion South Korean won worth approximately $7.5 million. Bitsonic’s CEO Jinwook Shin got 7 years for manipulating the prices of cryptocurrencies and trading volumes on the exchange, while his tech chief, Mr. Bae got a year for obstructing trading on the exchange via his computer.
According to a South Korean news outlet, Mr. Shin was arrested last year in August by the Cyber Crime Investigation Department of the Seoul District Prosecutor’s Office and indicted for acts of fraud, falsification of records, and leveraging tech and malfunctions to obstruct business.
Shin manipulated trading volumes using a buyback technique where he re-bought the quantity of Bitsonic funds that sufficiently raised the price of Bitsonic Coin, the exchange’s local currency. The executives also entered fake Korean won points on the Bitsonic exchange to deceive customers that they had deposited cash even when they hadn’t made such deposits.
The CTO Mr. Bae was found guilty of aiding the fraud by developing and running a system that enhanced the purchase of cryptocurrency held by Shin. According to the court, Bae used his position as the exchange operator and manager to neutralize the virtual asset’s “essential information processing function” and create an impression that the transaction volume was increasing organically.
The prosecution also revealed that Shin drew over 101 cryptocurrency investors from whom he stole over 10 billion won they deposited without any refunds – using the aforementioned fraudulent techniques.
Shin’s case is proof that cryptocurrency fraud, even from elites and exchange executives, has equally grave consequences. It follows a series of fraud-related jail terms issued against cryptocurrency exchange executives, including FTX’s Sam Bakman-Fried, Thodex’s Frank Faith Ozer, and V Global’s Byung-gul, among others.
The South Korean government, has for many years now, frowned at and taken intensive disciplinary action against anyone guilty of cryptocurrency manipulation or fraud. Back in 2022, Lee Byung-gul CEO of South Korean crypto exchange V Global, was sentenced to 22 years in prison for a scam involving a walloping $1.9B. Six other V Global executives also got jail terms of between four and 14 years depending on the severity of their crimes as accomplices.
While over-regulation may not pat the back of cryptocurrency firms and investors, cases like this explain why regulatory agencies are always on their toes with new regulations and sanctions against cryptocurrency exchanges for investor safety. The latest of such regulatory demands is US Treasury Secretary Janet Yellen calling on Congress to pass legislation to regulate the spot cryptocurrency market.
In the words of Chief Judge Lee Jong-Chae, the two Bitsonic executives “are avoiding responsibility and showing no remorse, and even a significant amount of the damage has not been recovered”. The judge also decried the damage the occurrence had caused to trust between virtual asset exchanges and their customers.
“Trust in virtual asset exchanges, which must be operated based on trust between operators and users, has been greatly damaged…” he added.
Next in line is the case of Binance’s erstwhile CEO Chanpeng Zhao (CZ) who risks up to 18 months in prison for violating US Federal Money Laundering requirements. Last year, CZ stepped down and pled guilty to money laundering charges and bagged a whopping $4.3B in fines.
After his imminent Feb. 23 sentencing, he may become the biggest name among crypto exchange executives to be sent to jail following money laundering, fraud, manipulation, or similar violations.