Two Korean crypto exchange operators have been imprisoned for defrauding investors. The exchange operators allegedly inflated the volume of transactions taking place on their exchange platform and made false electronic records, according to a January 18 article in a Korean tech news outlet, Blockinpress.
Hyunsuk Choi, former CEO of the now-defunct Komid crypto exchange, received a three-year prison sentence, while his partner, Park, received a two-year prison sentenced for wash trading.
Wash trading is an illegal scheme in which a trader buys and sells a security simply to confuse the markets and make it seem like the security has high trading volume. Choi and Park engaged in wash trading to convince investors that the Komid platform was doing more business and trading than it actually was. Although this is reportedly the first time a crypto exchange executive has been sentenced to prison for wash trading, Choi and Park are not the first to engage in this type of fraudulent activity.
According to a December report published by the Blockchain Transparency Institute, 80 percent of top BTC pairs on 95 percent of exchanges have inflated volumes due to wash trading. That report stated, "Many of these exchanges exist solely to collect these fees while their bots run their exchange." In December 2018, Korea-based crypto exchange Bithumb was accused of using the tactic to falsely increase the volume of trades on its platform.
According to Blockinpress, Choi and Park embezzled 50 billion won (approximately $45 million) in customer fees by creating five fictitious accounts through which they processed 5 million fake transactions. The judge opined that Choi has been committing fraud against investors for some time and chided the defendant for blaming Korean financial authorities for not keeping a closer eye on him.