Many exchanges have been previously accused of faking trading volume but looks like nothing was as severe as that of Coinbit, one of largest crypto exchanges in South Korea. A report from local outlet Seoul News states that Coinbit allegedly faked over 99% of its volume, and its offices were recently raided and confiscated by Seoul police after evidence of wash trading was found.
According to the report, Coinbit owner Choi Mo, along with other members of the team supposedly sold and bought different assets on the exchange to stimulate fake volume, and authorities state that this has affected the exchange’s 252,000 monthly active users.
Coinbit allegedly made two exchange accounts that contained all user funds. One of the accounts was used to wash trade major cryptocurrencies like Bitcoin, Ethereum, XRP, and Tether trading pairs using ghost accounts.
The other account traded lesser-known altcoins and initial exchange offering (IEO) tokens – where the asset is only available on a single exchange – by controlling supply and thereby manipulating the price of the token, increasing their value, and ultimately duping on unsuspecting traders.
With this is a notorious scheme, the exchange managed to net over 100 billion won ($85 million) in fraudulent income via their wash trading method that spurred the legal action, the report claimed.
Furthermore, authorities are also suspecting Coinbit’s accounting practices, and have raised several questions that point at the possibility of additional malpractice and embezzlement. An accounting firm even reportedly refused to work with the firm after viewing its books.
The report quoted an anonymous tax accountant who said:
“The fact that Coinbit rejected the opinions from external auditors means that the company’s operation was done in an out-of-the-box fashion, and in fact, its accounting cannot be trusted at all.”
Korea and Exchange Fraud
The Korean crypto market isn’t a stranger to wash trading as there have been multiple similar accusations before.
Last year, two executives from the Korean cryptocurrency Komid were jailed for wash trading. The specialized trading bot that executed these fake trades reportedly generates 50 billion won in wash trades on Komid.
Back in 2018, South Korea’s largest cryptocurrency exchange, Upbit, was indicted for fraud.
However, Doo Wan Nam, head of business development in Asia for crypto firm MakerDAO, believes more of these crackdowns can be expected in the future.
“It’s not the first time a Korean exchange has been accused of fraud. Unfortunately, as the new crypto regulation is incoming in Korea, such crackdowns might become more common.”