The former CEO of Komid, Hyunsuk Choi, and another executive from an unspecified role, Park Mo, were sentenced to jail time for faking exchange volumes, known as “wash trading.”
South Korean authorities reported that the two were involved in a scheme to inflate the exchange’s trade volume by creating five accounts and using them to fake 5 million transactions, reportedly earning them $45M. Additionally, it was reported that the exchange was suspected of fraudulently attracting new users by implementing bots to automatically create large orders.
On January 17, Park Mo received a sentence of 2 years imprisonment while Choi received 3, finding him guilty of the additional crime of transferring Bitcoin from the exchange to an external wallet, with the court, presided by the country’s top judge Ahn Seong-joon, saying, “Choi has committed fraud for a countless number of victims for a long period of time … Furthermore, he holds the financial authorities responsible for failing to keep track of the industry better.”
The judge went on to say, “the crime has damaged customers’ confidence in the virtual currency exchange and has had a negative effect on the domestic virtual currency trading market.”
Of course this pair aren’t the first South Korean exchange executives to be accused of fraud or manipulating the trading system. In December, Ubit saw their board chairman, financial director, and two other employees charged for manipulating transactions and creating fake orders worth around $226B.
Earlier that same month, the cryptocurrency exchange ratings and analytics service CER accused Bithumb of faking up to 94% of its trade volume since summer of 2018. However, as of this article there have not been any formal charges announced and Bithumb was quick to deny the allegations by reportedly telling Forbes, “Bithumb is doing nothing to inflate trade volume.”
Wash trading has been illegal in the United States since 1936 and due to the risk it can cause to financial markets, it has become a punishable criminal offense around the world. Shockingly, a December 2018 report by the Blockchain Transparency Institute noted that only 3 out of the top 25 BTC trading pairs were not grossly wash trading their volume: Binance, Bitfinex and Liquid.
Of course this doesn’t mean that a majority of the exchanges around the world are guilty of wash trading or fraud, but it’s definitely something that everyone with an interest in the industry and market should keep an eye on.