[Cryptocurrency Scam Targets] ② Cryptocurrency Scammers Evading Legal Nets... Victims Helpless

"Soon to be listed on the OOO exchange." At the end of 2020, when the cryptocurrency boom was at its peak, Mr. A (50) bought several tens of millions of won worth of 'B Coin' through an acquaintance. The acquaintance said that B Coin was about to be listed on a major cryptocurrency exchange and that its price would soar the moment it was listed. Mr. A invested, thinking it was similar to unlisted stocks. However, B Coin was not listed on any major cryptocurrency exchange for nearly a year, and Mr. A asked the acquaintance to return his investment. The acquaintance, however, claimed, "I also lost money," and expressed difficulties. Mr. A thought the foundation was at fault and tried to file a fraud charge, but lawyers discouraged him. They explained that if there was no intent to deceive from the early stages of issuing B Coin, it is difficult to apply fraud charges. Mr. A lamented, "Everyone invested thinking cryptocurrency was the future source of income and similar to stocks; no one expected to be scammed," adding, "I don't understand why it's so hard to punish fraudsters in Korea."

[Image source=Yonhap News]

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According to the police and related industries on the 18th, cryptocurrency fraud typically takes the form of a multi-level scam. Instead of investing directly in the foundation that issued the cryptocurrency, the method involves investing through acquaintances. Those who recruited investors received rewards from the foundation. Some companies paid a 10% commission on the investment amount for bringing in new investors or gave watches or Bitcoin to those at the top of the multi-level hierarchy. A police official said, "There are many victims of cryptocurrency fraud involving billions of won, but the majority are relatively small amounts like tens of millions or hundreds of thousands of won," adding, "Even those without much investment capacity scrape together money to invest through acquaintances, showing a typical multi-level scam pattern."

However, it is difficult to hold perpetrators accountable for multi-level scams involving cryptocurrency. According to Article 347 of the Criminal Act, fraud charges apply when a person deceives others to gain property benefits, but if the white paper explaining the cryptocurrency business is created and the related business plan is being implemented or not promised, it does not constitute deception.

On January 3rd, the Criminal Division 34 of the Seoul Central District Court (Presiding Judge Kang Gyu-tae) acquitted Lee Jeong-hoon, former chairman of the board of Bithumb Holdings and Bithumb Korea, who was charged with fraud under the Act on the Aggravated Punishment of Specific Economic Crimes. In October 2018, Lee proposed joint management to Kim Byung-geon, chairman of BK Medical Group, and received about 112 billion won as a contract deposit, claiming he would issue and list Bithumb Coin. However, Bithumb Coin was never listed, and Kim failed to pay the balance, causing the joint management to collapse. The court stated, "Based on the evidence submitted by the prosecution alone, it cannot be recognized that Lee guaranteed the coin listing," adding, "The contract does not contain any guarantee of listing, and Kim has considerable experience and knowledge in stock investment and the cryptocurrency industry, so he was not misled solely by Lee's words."

Lee Jung-hoon, the former chairman of the Bithumb Korea board and the actual owner of the cryptocurrency exchange Bithumb, who was indicted on charges of fraud involving 100 billion won, is attending the first trial sentencing hearing held at the Seoul Central District Court in Seocho-dong last January.
[Image source=Yonhap News]

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The fact that cryptocurrency is regarded as an object rather than property also makes prosecution difficult. On February 27th, the 3rd Public Trial Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Jeong-ryeol) filed an appeal against the first trial ruling on cryptocurrency expert Mr. B (43). Mr. B embezzled about 1.414 billion won worth of cryptocurrency from victims of a failed business acquisition, promising to resolve their investment funds and used it to repay debts, but the court did not consider it embezzlement. According to precedent, cryptocurrency does not qualify as property subject to embezzlement under criminal law.

Meanwhile, the number of fraud victims is increasing. According to the National Police Agency, there were 2,733 cases of fraud violations under the Act on the Aggravated Punishment of Specific Economic Crimes from January to November 2022. The numbers were 2,436 in 2019, 2,572 in 2020, and 2,073 in 2021, showing a slight decline but now trending upward again.

Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies said, "Victims of cryptocurrency fraud seek various legal grounds such as the Act on Door-to-Door Sales, the Electronic Commerce Act, as well as fraud charges to punish perpetrators," adding, "In the end, many give up lawsuits because they cannot find appropriate legal grounds." He further stated, "The Cryptocurrency User Protection Act (tentative name), currently under discussion in the National Assembly, should include clear provisions to punish cryptocurrency-related fraud."

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