'Cheongdam-dong Stock Tycoon' Lee Hee-jin, Now Coin Fraud... Dissecting the 'Scam Coin' Deceiving Investors

Issuance of Coins Claiming Business Purpose... Profit from Selling at Peak
Asymmetric Information on Circulation Volume Enables Large-Scale Dumping

Lee Hee-jin (37), known by the nickname "Cheongdam-dong Stock Rich," an economic offender, has been brought to trial this time on charges of "scam coin" fraud. Lee is accused of manipulating the prices of coins issued under the guise of electric vehicles, art piece fractional investments, and pet businesses, raising their prices through market manipulation and then selling at the peak to gain an unfair profit of 90 billion KRW. It is not easy for investors to judge the feasibility of the business, and even if there is a concrete entity, if the issuing company holding a large volume sells off, it ends there. Therefore, voices are calling for measures to resolve the asymmetry of "circulation volume" information to reduce damage from "scam coins." In the past, Lee was sentenced to 3 years and 6 months in prison for setting up an investment trading company without financial investment business approval and pocketing 13 billion KRW in capital gains, and was released in March 2020 after serving his term.

On the 15th of last month, Lee Hee-jin, known as the 'Cheongdam-dong Stock Rich,' appeared at the Seoul Southern District Court for a pre-trial detention hearing. [Image source=Yonhap News]

Posing as a Plausible Business and Manipulating Prices

“Scam” refers to deceiving the other party in credit fraud or gambling. In the virtual asset industry, a scam means deceiving investors with false information to drive up prices and then selling at a high price to obtain criminal proceeds. Scam coins are coins used for such crimes. Scam coin organizations establish and operate businesses under false pretenses to profit from selling coins and issue coins linked to these businesses. They then list the coins by spreading false positive information or whitepapers that mislead investors. They sometimes use illegal listing brokers to list coins on exchanges. Afterward, they manipulate coin prices through fictitious or collusive trading, false or exaggerated promotions, and running leading chat rooms, then sell at high prices. After issuing coins, they may list them on small or less-known exchanges and disappear, or stop developing services linked to the coins after listing. They may also silently increase the coin supply or violate the "lock-up" period (an agreement restricting trading of virtual assets for a certain period) and sell coins.

"Lee Hee-jin Brothers, Fraud with Three Scam Coins"

The Seoul Southern District Prosecutors’ Office Virtual Asset Crime Joint Investigation Team (Chief Lee Jeong-ryeol) reported on the 4th that Lee and his younger brother Lee Hee-moon (35) committed crimes by issuing and distributing three scam coins, applying charges of breach of trust and fraud under the Act on the Aggravated Punishment of Specific Economic Crimes, and were indicted in custody. According to the prosecution, the Lee brothers and their coin issuing company employee Kim (34) issued and listed three coins from March 2020 to September 2022, engaged in false and exaggerated promotions and price manipulation, and sold these coins to embezzle 89.7 billion KRW. Even while imprisoned for stock fraud, Lee secretly established the G Coin issuing company in 2019 and managed it through his brother Kim. After his release in March 2020, he directly or through consignment issued and distributed scam coins or manipulated prices by block deals buying scam coins at low prices, the prosecution said.

One of the three coins used in the crime, Pica Coin, was issued in collusion with Seong Hae-jung and Song Ja-ho, co-CEOs of the Pica Project. Seong and Song were responsible for promotion and external activities, while the Lee brothers handled issuance, management, price manipulation, and sales revenue settlement. According to the indictment against Seong and Song, they spread false information in whitepapers and online posts portraying the Pica Project’s "Korea’s first art NFT business" as successful, and attracted exchange members by fabricating active buying trends through fictitious and collusive trading and high-price purchases. Lee and others used YouTube broadcasts recommending coins as a major means of price manipulation, spreading positive information to lure investors. A prosecution official said, "This is a typical scam coin case involving establishing and operating a shell company, false and exaggerated promotions after coin listing, spreading false information on YouTube for price manipulation, selling coins, and then liquidating the business."

Key to Judging a Scam Is Understanding ‘Circulation Volume’

The primary way to distinguish scam coins is to understand the substance of the business. If the business content is absurd or the whitepaper is abstract and complicated, the possibility of a scam coin is high. However, it is difficult to judge whether the business is feasible, and even if there is substance, the issuing company can profit by mass selling at will, which is problematic. For example, the coin "Purever," which was linked to the "Gangnam kidnapping murder" case at the end of March, is currently suspected of being a scam coin. The issuing company, Uni Network, introduced its business concretely, claiming to provide a service managing clean air using blockchain technology. Around its listing in November 2020, it promoted trustworthy business content, such as signing business agreements with companies, corporations, and educational institutions. The Seoul Southern District Prosecutors’ Office is currently investigating illegal price manipulation and bribery related to Purever coin.

Because it is difficult to grasp the issuing company’s fraudulent intent, resolving the asymmetry of "circulation volume" information is considered a second-best option. Since the structure is to hold scam coins for fraud and dump large volumes when prices rise to profit, if investors know the coin circulation information, they can somewhat gauge whether it is a scam coin. However, currently, the issuing company holds the coin issuance and circulation volumes, and there is no sharp measure to sanction this. Exchanges receive plans regarding issuance and circulation volumes at listing and impose stepwise sanctions from designation as a watch-listed item to delisting if not followed, but these are internal measures by exchanges, not legally mandated, so limitations are clear.

Attorney Yeo Ja-seon of the law firm Gwangya said, "It is difficult to establish criteria for unclear businesses, so distinguishing scam coins by the presence or absence of business substance is difficult," adding, "Regardless, the problem is that the issuer holds all disposal rights." She explained, "The biggest risk is that we cannot monitor or control when, how much, and how they sell the coins." Professor Park Jae-pyeong of Chungbuk National University Law School said, "Since the issuers hold the initiative, it is a laissez-faire situation that must rely on their goodwill," and added, "There is a need to establish an institution that can disclose coins like stocks or to prepare regulations through laws or, if not possible, through enforcement decrees."

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