South Korean police raided the offices of Coinbit, one of the country’s major crypto exchanges. Insiders leaked that the exchange manipulated 99% of its trade volume and police also accused the management of fraud.
The Seoul Police Agency’s Metropolitan Investigation Department raided South Korea’s third-largest crypto exchange Wednesday morning. The South Korean newspaper Seoul Shinmun has reported that police inspected several locations, including the company’s headquarters in Gangnam-gu, Seoul.
The raids occurred as part of an ongoing investigation into fraudulent trading volume. Coinbit was accused of “bicycle trading,” which is a way to manipulate volume by ghost accounts controlled by staff to trade back and forth.
Earlier this month, Coinmetrics released a report alleging that a lot of trade volume on major exchanges was wash trading. In July, Canadian crypto exchange Coinsquare was litigated for falsifying 90% of its trade volume.
Coinbit Does the Wash
The police suspect Coinbit of scheming to steal up to 100 million won ($85 million) by using multiple methods of fraud. Even the company’s chairman, Choi Mo, has been accused of money laundering.
Police identified two wallets on Coinbit that they believed management used to artificially inflate trade volume. Authorities also allege that Coinbit used wallets to inflate the price of little-known and sometimes worthless microcap coins. This attracted the interest of traders, who then purchased the coins at a premium.
In addition to wash trading, Coinbit management also took advantage of the market spread to profit for themselves, police say.
The company functioned as two separate exchanges. One traded major coins and the second traded new cryptocurrencies.
This second exchange was “blocked” and could not receive or send coins directly from other exchanges. In this way, Coinbit management had strict control over the supply of coins. The management manipulated prices by changing supply, and then profited heavily from each buy and sell.
The exchange’s accounting practices are also opaque, according to Seoul Shinmun. Insiders contacted the newspaper earlier this year alleging that there was a high probability of embezzlement happening within the company, the publication claims.
Coinbit presented an audit to the Financial Supervisory Service in Korea in April. However, the company “rejected the opinion” of an external auditor. The bookkeepers only provided internal financial statements.
A tax accountant who wished to remain anonymous said,
The fact that they rejected an external audit means that the company’s operations are not up to reasonable standards, and the company’s accounting is unreliable.
At the time of press, the Coinbit exchange website appears to be up and running. According to Coinmarketcap, the exchange has a 24-hour volume of $279,366,965.