[Coin Targeted by Fraud] ① 'Coin Craze' Turns into 'Fraud Backlash'... Profit-Seeking Without Technology Issues

Over 100 Coin Fraud Cases Arrested Annually
Since 2021, Losses Exceed 1 Trillion Won
Fraud Methods Focused More on Profitability Than Technology

Mr. A briefly dreamed of becoming rich. He was introduced to three new cryptocurrencies that were about to be listed by an acquaintance, Mr. B. It seemed different from a simple cryptocurrency business. Through business briefings and social networking services (SNS), Mr. A was assured that "even if the cryptocurrency is not listed or the price falls, the principal will be guaranteed." Believing this explanation, Mr. A and about ten other investors handed over 2 billion won to Mr. B. However, the listing date of the cryptocurrency kept changing, and the price kept falling endlessly. Not only that, they did not even receive the promised cryptocurrency. Eventually, Mr. A and about ten others filed a complaint against Mr. B for violating the Act on the Aggravated Punishment of Specific Economic Crimes (fraud). The case was transferred to the prosecution in October last year. Mr. A said, "I thought there was business potential because the cryptocurrency was named after a famous boxer," adding, "I later realized that anyone could issue cryptocurrencies."

The cryptocurrency investment frenzy, which was fueled by the sharp rise in Bitcoin prices in 2017, is turning into a backlash of 'coin fraud.' In particular, coin fraud, which directly benchmarks methods already rampant in other fields such as Ponzi schemes (multi-level financial fraud) and planned real estate fraud, has already taken deep root in Korean society.

According to statistics from the National Police Agency, the number of arrests related to illegal activities involving coins and other virtual assets recorded over 100 to 300 cases annually: 103 cases (289 arrests) in 2019, 333 cases (560 arrests) in 2020, 235 cases (862 arrests) in 2021, and 108 cases (285 arrests) in 2022. Since 2021, the amount of damages has exceeded 1 trillion won. Last year, the damage amount was 1.0192 trillion won, while in 2021 it was 3.1282 trillion won.

Cryptocurrency fraud damages exceed 1 trillion won... Typical multi-level scheme

[Image source=Yonhap News]

Cryptocurrencies that lead to fraud tend to focus solely on profitability rather than technologies like blockchain, attracting investors. The case of Mr. Lee, the CEO of the cryptocurrency exchange 'V Global,' who was sentenced to 25 years in prison by the Supreme Court last January, is a typical example. V Global created a cryptocurrency exchange and issued a cryptocurrency called 'V Cash.' The rosy promotion promised a 300% return on investment in V Cash without any special technological capability.

Moreover, it showed a typical illegal multi-level marketing fraud pattern, such as "we will give referral fees if you recruit other members," making it just a nominal coin. Investigations revealed that V Global was a Ponzi scheme that paid existing investors with money deposited by new investors. The CEO Lee and three other executives who were indicted received prison sentences ranging from a minimum of 4 years to a maximum of 14 years.

Experts point out that there are no laws to deal with crimes related to coins, so victims are helpless even when damage occurs. Legislative bills to protect coin investors have been stuck in the National Assembly's Political Affairs Committee for two years. On the 28th of last month, the Political Affairs Committee held its first subcommittee meeting to review 18 bills related to virtual currencies. It was 22 months since Rep. Lee Yong-woo of the Democratic Party first proposed the 'Virtual Asset Business' law in May 2021. However, the 18 bills related to virtual assets vary widely in content, and there are many disagreements among committee members, so no proper discussion took place even at this subcommittee meeting.

Professor Hong Ki-hoon of the Department of Business Administration at Hongik University said, "The entire cryptocurrency market has a multi-level structure, making it difficult to detect fraud early on," adding, "In reality, they bring whitepapers with nothing but plans to recruit investors, and the coin industry takes this for granted."

Professor Hong continued, "There is a need to regulate with the current Capital Markets Act or enact equivalent laws," and said, "Along with preventing coin fraud in advance, post-penalties should be strengthened so that not only the creators of cryptocurrencies but also those involved in price manipulation and others can be punished."

This content was produced with the assistance of AI translation services.