The coinnest logo. Photo: coinnest.com

South Korean prosecutors have detained four executives from two cryptocurrency exchanges on embezzlement and fraud charges, reports Bloomberg, with local media saying Kim Il-hwan, the CEO of South Korean-based cryptocurrency exchange CoinNest, is among those arrested.

The Seoul Metropolitan Government’s Financial Investigation Division is reported to have been examining a number of Korean-based virtual exchanges since December and, again according to local media, another as-yet unnamed Korean exchange is said to be included in the charges.

Prosecutors allege customer funds have been redirected for the benefit of company executives.

South Korea became a hotbed of digital currency trading last year and amid fears of fraud and money laundering, the central government attempted to regulate the sector by banning both initial coin offerings last year and anonymous trading deposits into anonymous virtual accounts at banks. Foreigners are also banned from using domestic Korean crypto-currency exchanges.

This marks the first time a director of a Korean exchange has been arrested in relation to crypto-based fraud charges.

Only days before the arrests, the leader of the Seoul Metropolitan Government, mayor Park Won-soon, announced his administration was about to launch South Korea’s first city-funded digital token, called the S-Coin, arguing it was the role of local government to create new “cases and models” in the blockchain sector.

Coinnest, according to coinmarketcap.com, ranks 57th among global cryptocurrency exchanges with a trading volume of just over $8 million a day and remains open. “Our customers’ deposits are being securely maintained,” said a notice on the Coinnest website.