A South Korean exchange has been forced to declare bankruptcy after embezzlement from a senior member of staff allegedly caused the exchange to lose access to its wallets, totaling some $26 million in losses. Coinbin, which took over and relaunched hacked exchange YouBit in March 2018, filed for bankruptcy last week, during which the astonishing admission was made that the step was “due to a rise in debt following an employee’s embezzlement.”
South Korea’s cryptocurrency exchange, “Coinbin(코인빈)”, has filed for bankruptcy due to the loss of the wallet manager’s private key. https://t.co/WEULNNZetZ pic.twitter.com/9YpeTzwFbC
— Simon Choi (@issuemakerslab) February 20, 2019
Lee Removed Private Keys from Bitcoin Wallets
Local media first reported the story, stating that the perpetrator, a senior executive and cryptographic expert referred to only as Mr. Lee, appropriated the private keys of several hundred Bitcoin wallets, while claiming to lose the private key of an Ethereum wallet containing over 100 ETH. This means the exchange no longer has access to 29.3 billion won ($26 million), of which 2.3 billion ($2 million) is recorded lost.
The incident actually dates back to October last year when Lee, who joined Coinbin as part of the YouBit takeover, removed stickers containing the private keys from eighty physical Bitcoin wallets, later claiming that he didn’t know he had to back them up first. Colleagues were skeptical however, seeing as Lee was known as a cryptographic expert having co-authored a book on the subject. There are suggestions he had first printed the private keys out on paper wallets, potentially with the idea of restoring the wallets at a later date.
Long Road for Customers?
Coinbin plans to sue Lee for embezzlement, although they could be in trouble themselves after failing to inform shareholders and customers of the incident, which invalidates their insurance policy and means they won’t get a payout. Customers expecting refunds therefore might be out of luck, unless Lee does actually have access to the Bitcoin wallets, although the process of getting funds back to customers could turn out to be Mt. Gox Mark II. And, we all know how that’s going…
