- Coinbit was seized by authorities earlier today after manipulating volume on its exchange.
- Police said the business made over $85 million in illegal income.
- Investigations are ongoing.
Seoul police have raided the offices of Coinbit, one of the largest crypto exchanges in South Korea, this morning after they found the firm had used illicit methods to generate trading volume and earn millions of dollars, according to local outlet Seoul News. Coinbit allegedly faked over 99% of its volume using the scheme.
Fake volumes are a rampant feature in crypto markets globally, with researchers stating over 90% of all transactions on exchanges could be bots trading back and forth with each other to generate the illusion of an active market. This is referred to as “wash trading.”
Coinbit utilized a similar scheme, said the police. The exchange’s owner, Choi Mo, and other team members were alleged to have bought and sold various tokens between different accounts on the exchange, which authorities said affected Coinbit’s 252,000 monthly active users.
The modus operandi was as follows: Coinbit made two exchange accounts containing all user funds. One account wash traded on major cryptocurrencies such as Bitcoin, Ethereum, XRP, and Tether trading pairs with “ghost” accounts.
— Doo (@DooWanNam) August 26, 2020
The other account was allegedly used exclusively for trading obscure altcoins and initial exchange offerings—where a coin is available only on one exchange—by controlling their supply, manipulating their prices to higher values, and eventually dumping the tokens on unsuspecting retail traders.
Doing so allowed Coinbit to attain over 100 billion won ($85 million) in fraudulent income coupled with their wash trading method that spurred the legal action, the report claimed.
Accounting fraud and more crackdowns ahead
Authorities have also raised questions about Coinbit's accounting practices, which point towards the possibility of additional malpractice and embezzlement, the report said.
An anonymous tax accountant told the local reporters, "The fact that Coinbit rejected the opinions from external auditors means that the company's operation was done in an out-of-the-box fashion, and in fact, its accounting cannot be trusted at all."
Meanwhile, Doo Wan Nam, head of business development in Asia for crypto firm MakerDAO, said such actions can be expected in the future as stricter laws governing crypto businesses are introduced in Korea.
"It's not the first time a Korean exchange has been accused of fraud. Unfortunately, as the new crypto regulation is incoming in Korea, such crackdowns might become more common,” he told Decrypt.
At press time, police have cordoned off several branch offices of the exchange including its headquarters in the posh business district of Gangnam-gu in Seoul. Investigations are ongoing.