The CEO of Korean cryptocurrency exchange Komid, along with another executive, have been handed jail sentences for their parts in faking volume on the exchange. The men, CEO Hyunsuk Choi and in-house director Mo Park, received three and two-year prison sentences respectively for fraud, embezzlement, and misconduct after falsifying volume data. Volume falsification is usually conducted with the aim of making the exchange seem more active than it is, which makes it more attractive to traders.
Five Million Fake Transactions
Komid launched in January of 2018 at the height of the crypto bull market, presumably thinking their volume would be as guaranteed in the buoyant marketplace. However, conditions in the market rapidly deteriorated, and Choi took to creating fake accounts in order to inflate trading volume in both cryptocurrencies and Korean won. Between them, Park and Choi are said to have fabricated some five million transactions on their platform, leading to earnings in the region of $45 million. There is also suspicion that the pair utilized a ‘bot’ to automatically create large orders, which attracted new users.
Is Upbit Next?
According to a report from the Blockchain Transparency Institute, order fabrication and volume manipulation are rife in cryptocurrency trading, with 87% of all reported trading volume being faked. Many exchanges came into being during the heady days of the 2017 bull run, meaning they were unprepared for the bear market that followed, leading to many taking matters into their own hands in a desperate attempt to keep their profits up. Some of course are simply trying to game the system for a quick win.
The legal action again Komid faces represents the first time a virtual currency exchange owner has been prosecuted for volume manipulation in the country, but an ongoing legal case against leading Korean exchange Upbit means that this may not be the last.