South Korea’s third-largest cryptocurrency exchange has been seized by police following fraud allegations, according to Cointelegraph, which cited a report by the Seoul Shinmun. Police allege that 99% of Coinbit’s transaction volume was faked through wash trading.
The Seoul Metropolitan Police raided and confiscated a number of properties, including Coinbit’s headquarters in Seoul’s Gangnam district.
Coinbit’s owner, Chairman Choi Mo, and his management team allegedly inflated transaction volumes and manipulated token prices using ghost accounts.
Police estimate that the fraudulent activities netted over 100 billion won ($84.26 million).
The Seoul Shinmun was alerted to suspected wash trading on the exchange by an insider in May. Following an investigation, it found that, between August 2019 and May 2020, 99% of transactions on Exchange 1, where major cryptocurrencies such as Bitcoin (BTC) were traded, had no corresponding deposit and withdrawal details, Cointelegraph reported.
In addition, it found that Exchange 2, which mainly listed smaller cryptocurrencies, blocked coin transactions with other exchanges, enabling Choi and his team to control the supply of coins. This allowed the management team to directly realize market margin by buying and selling large quantities of coins at certain times.
The publishing of the investigation findings was held back until after the police operation due to concerns about personal safety and destruction of evidence.
Wash trading on exchanges is a major problem for the cryptocurrency industry, with many legitimate traders lured into using low-liquidity exchanges based on fraudulent daily volume claims.
Due to the rise of cryptocurrencies around the world, more than a thousand exchanges have appeared, Coins Network reports. In order to strengthen competitiveness and make investors feel that exchanges are trading smoothly and can effectively buy and sell cryptocurrencies, some exchanges will create a large number of false transactions. Some of these exchanges will use different methods, such as not allowing people to withdraw cryptocurrencies, and suddenly stopping operations for a period of time for no reason, in the hope of controlling cash flow and transaction prices.