South Korean prosecutors will expand their probe on local cryptocurrency exchanges taking bribes to list certain tokens, if more evidence is found in their ongoing investigation.
“We will [expand] the investigation to other exchanges if we see more evidence,” a spokesperson for the Seoul Southern District Prosecutors’ Office told Forkast via text message. The prosecutors’ office denied launching an industry-wide probe, contrary to local media reports.
Lax regulation in the crypto sector in South Korea has allowed the illegal backdoor listing of cryptocurrencies. Currently, there is no legal guidance for token listings, allowing exchanges to process them by their own set of rules.
One former employee of South Korean crypto exchange Coinone, identified only by his family name Jeon, was arrested last month for allegedly accepting around US$1.5 million in bribes from brokers commissioned by token issuers to list around 25 cryptocurrencies on the exchange.
Jeon’s alleged crime took place between 2019 and 2021 but several cryptocurrencies that are believed to have been listed through bribery, including art platform Pica Project’s PICA token, continue to be traded at Coinone, according to local news outlet JoongAng Ilbo.
Following Jeon’s arrest, Cha Myung-hoon, the chief executive officer of Coinone, was investigated by the Seoul Southern District Prosecutors’ Office as a potential witness to the alleged crime.
Seoul prosecutors also raided the home of Lee Sang-jun, the CEO of Bithumb Holdings for similar charges. Bithumb Holdings is the holding company of the country’s second-largest crypto exchange, Bithumb.
Bithumb and Coinone did not respond to Forkast’s written inquiry for comment on the arrest and investigation.
Manipulating tokens listing through bribes is not a well-kept secret in the South Korean crypto sector, Seoul-based Dongguk University professor of information security and financial crime expert Hwang Suk-jin told Forkast via text message.
“Some exchanges do practice transparency in listing tokens, but many exchange employees have engaged in such behavior as common practice,” said Hwang.
South Korea has yet to establish a legal framework for the listing and delisting of cryptocurrencies on exchanges. The country announced in the midst of the multibillion-dollar collapse of Terra-Luna last year that it will develop the Digital Asset Basic Act within the first half of 2023 to establish an all-encompassing set of regulations for the industry.
However, the plan has not made significant progress in the one year since, as the 14 proposals made by South Korean lawmakers regarding the legal framework have not once been discussed at the National Assembly.
Instead, South Korea’s top five exchanges — Upbit, Bithumb, Coinone, Korbit and Gopax — have formed the Digital Asset eXchange Association (DAXA), a joint crypto market monitoring organization to prevent unfair trade acts from the digital asset market.
The five platforms are the only licensed exchanges to service fiat-to-crypto trading, and account for 99% of the local crypto market share.
DAXA on March 22 announced that from April, member companies will be mandated to include at least one third-party legal expert, who must be free of any conflicts of interest, to review the listing of a cryptocurrency, according to local news outlet Blockchain Today.
“DAXA has been establishing self-regulatory guidelines that can enhance the transparency of the market before legislation takes place,” said Hwang, asserting that bribed listings must be eradicated as it undermines fair trading opportunities for investors.
South Korea has 27 active exchanges in which 625 cryptocurrencies are traded, according to the Financial Services Commission, the country’s top financial regulator.