South Korean Crypto Exchange Executives Detained in Fraud Probe

(Bloomberg) -- South Korean prosecutors detained four executives from two cryptocurrency exchanges on allegations of embezzlement and fraud as regulators crack down on virtual currency trading in one of the world's busiest bitcoin markets.

Among those detained are the heads of Coinnest and another unidentified cryptocurrency exchange, said Jeong Mi-ran, press officer with the Seoul Southern District Prosecutors' Office. Prosecutors are investigating allegations the executives siphoned funds out of client accounts into their own, Jeong said. A request for arrest warrants will be made soon, she said.

A representative for Coinnest couldn't be reached for comment Thursday. On its website, the company said it had divided up management roles since the investigation began.

The exchange is operating normally and “our customers' deposits are being securely maintained,” the company said.

A hotbed of digital currency activity, South Korea has been moving to control trading activity, banning initial coin offerings last year and mulling restrictions on local exchanges. Concern cryptocurrencies could provide an avenue for money laundering and other illegal activities saw the country impose a range of curbs, including outlawing deposits into anonymous virtual accounts at banks. Minors, foreigners and financial institutions are also banned from domestic cryptocurrency exchanges.

Read more: Why the Cryptocurrency World Is Watching South Korea: QuickTake

Coinnest ranks 57th among global cryptocurrency exchanges, with trading volume of $8.3 million in the last 24 hours, according to Coinmarketcap.com, a digital currency data aggregator.

--With assistance from Kyungji Cho

To contact the reporter on this story: Jihye Lee in Seoul at jlee2352@bloomberg.net.

To contact the editors responsible for this story: Peter Pae at ppae1@bloomberg.net, Emma O'Brien

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