Police probe bitcoin Ponzi scam

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Police probe bitcoin Ponzi scam

Korean authorities are investigating a Hong Kong-based cryptocurrency brokerage for allegedly scamming investors out of hundreds of billions of won.

The cyber crimes unit of the Seoul Metropolitan Police Agency is looking into claims that the brokerage, Ethtrade, ran a Ponzi scheme targeting Korean investors, according to local media reports Thursday.

Ethtrade reportedly lured investors by guaranteeing 15 to 20 percent returns per month, which the firm said came from investment in cryptocurrencies like bitcoin and ethereum.

But instead, the firm paid investors about 10 to 25 percent commission from the money it received from new investors, whom existing investors had recruited.

Ethtrade opened in Hong Kong in 2015 and started operations in Korea last December.

Earlier this year, Hong Kong’s financial regulator, the Securities and Futures Commission, red-flagged Ethtrade for operating without proper authorization.

According to an attorney representing a group of Korean victims, the brokerage received about 2 trillion won ($1.8 billion) from Korean investors and made a profit of about 500 billion won.

“We notified law enforcement after receiving reports of the case,” said Kim Sang-rok, a director in the monitoring department of the Financial Supervisory Service, Korea’s financial watchdog.

The Ethtrade case is not the first instance of fraud involving cryptocurrencies in Korea. In the past three years, the Financial Supervisory Service has referred 56 cryptocurrency scams to law enforcement.

Last month, the Gyeonggi provincial police arrested four people and booked 22 without detention for collecting 150 billion won from over 35,000 investors.

They reportedly sold cryptocurrency imitating bitcoin during the past two years by advertising returns of twice the principal.

In response to the growing number of fraud cases and rapid development of cryptocurrencies, the Financial Services Commission, Korea’s financial regulator, and the Financial Supervisory Service launched a task force last month to oversee the local market.

“One of the key items on the agenda is enforcing punitive measures on scams involving cryptocurrencies,” an official from the commission said, adding that the task force is currently pushing for a revision on the law regulating financial scams to specifically include fraud involving cryptocurrencies.


BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]

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