South Korean Police Shut Down Bitcoin Exchange Following Wash Trading Allegations

Coinbit, one of the largest cryptocurrency exchanges in South Korea, has been shut down by law enforcement authorities after it got hit with severe wash trading allegations. According to a report from Seoul Shinmun, the Seoul Metropolitan Police forcefully forced the company to shut its operations and seized confidential materials as fraud investigations have begun.

Fake Trade Volumes

Seoul Shinmun explained that Coinbit had allegedly faked up to 99 percent of its trading volumes. The exchange’s founder, Choi Mo, and several other top company officials, had reportedly been using fake accounts to make bogus trades on the platform for a while now.

The news medium explained that an insider had alerted it to Coinbit’s illegal operations since May. After an investigation, it discovered that Exchange 1 — a platform that handles most of Coinbit’s crypto trades — was filled with suspicious activity. As it explained, 99 percent of the transactions across the exchange between August 2019 and May 2020 had no corresponding deposit and withdrawal dates.

Seoul Shinmun also found that Exchange 2 — a separate platform that listed smaller cryptocurrencies — had blocked coin transactions with other exchanges. This action means that Choi and Coinbit’s leadership team could control the supply of coins as they pleased. They could make large transactions, realize market margins, and profit off the irregularities they made. According to the Metropolitan Police estimates, the leadership team’s fraudulent activities led to over 100 billion won (about $84.26 million) in profits. The exchange and its leadership team will now have to answer for their crimes.

Coinsquare’s Wash Trading Saga

Wash trading is one of the many concerns that several crypto detractors have brought against the industry’s exchanges. With big names like Binance posting billions in daily trading volumes, critics have pointed out that such numbers look bogus. Coinbit is reportedly the third-largest exchange in South Korea, so this isn’t so surprising.

However, even some smaller exchanges are facing wash trading allegations too. Last month, the Ontario Securities Commission (OSC) officially indicted Coinsquare, a local exchange, of artificially inflating trading volumes.

In its complaint, the OSC named several top company officials as persons of interest. These included chief executive Cole Diamond, founder Virgile Rostand, and head of compliance Felix Mazer. The agency alleged that Diamond had ordered Rostand to pump trading volumes since March 2018. Apart from just obliging, the latter came up with a solution that would allow them to continue with the practice long-term. 

The OSC alleged that Coinsquare conducted 840,000 fake trades between July 2018 and December 2019. The volume of Bitcoins contained in these transactions made up 90 percent of the exchange’s total trading volumes. Coinsquare’s wash trading issues started long before the OSC complaint. This year, tech news source VICE got leaked internal documents that had implicated Diamond in the wash trading scheme.

The correspondence included Slack messages, emails, and more. They showed that Diamond and Coinsquare’s executives had actively punished anyone who objected to their activities. One employee who turned off the code driving the fake trading engine had been reprimanded for his actions, despite raising concerns that their activities were “testing” the OSC.

Following a hearing, the three executives named in the OSC’s complaint agreed to step down from their roles. Per an announcement, they — as well as Coinsquare — also committed to paying $1.6 million in fines.