South Korean police on Thursday detained four executives from two cryptocurrency exchanges over alleged embezzlement.
Those questioned by police reportedly included Kim Ik-hwan, the CEO of Coinnest, while the identities of the other executives and the other exchange have not been made public.
The prosecutor’s office told Reuters that the executives are being questioned about “the embezzlement of billions of won from their clients’ accounts and transferring it to their own.” ($1 billion won is worth roughly $940,000 at current exchange rates.) The developments were first reported by Maeil Business Newspaper, a South Korean daily.
Coinnest has since released an update indicating that, amid the police action, its executive team has been replaced.
The statement reads:
“In order to resolve customer anxiety and sincere vocation requirements, the Coinnest Board of Directors has removed the involvement of executive management from the point of the last investigation and has been switched to a specialized management system.”
The company also pledged to carry out audits of user accounts via third parties, and to disclose the results in the “near future.”
Coinnest is South Korea’s fifth-largest exchange and the world’s 51st-largest by 24-hour dollar trading volumes, according to CoinMarketCap.
Wednesday’s detentions come amid an increased focus on South Korea’s cryptocurrency platforms from authorities in recent months.
Police and tax office officials raided two of South Korea’s largest exchanges in January, according to reports. However, a representative of one of the exchanges, Bithumb, characterized the incident as a “visit” from the National Tax Service in an email to ExposedCrypto. March also saw authorities raid three exchanges over alleged embezzlement.
Additionally, South Korea’s cryptocurrency market has been subject to growing regulatory scrutiny. The country prohibited local companies from conducting initial coin offerings (ICOs) in September and required cryptocurrency investors to use bank accounts linked to their real names in January.
These measures came in response to a surge in cryptocurrency trading in South Korea, particularly among the young, which caused concerns among both government officials and regulators.
Exchanges have since promised to work to improve the industry. On Tuesday, Korbit CEO Tony Lyu told an audience in Seoul, “We need to create a healthy market first. If exchanges can’t do that, we will have to turn to the government.”
South Korean police image via Shutterstock