Coinnest Platform CEO Embezzlement

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Coinnest

CoinNest was one of the major exchange platforms in South Korea, prior to the discovery that the CEO was stealing customer funds. The CEO was arrested and fined. The exchange shut down in April 2019, with users having to remove their assets by June 30th. There were no reports found of any customers not being able to retrieve their funds in the end.

This exchange or platform is based in South Korea, or the incident targeted people primarily in South Korea.

About Coinnest

"Coinnest is a crypto-currency trading platform that supports transactions for various coins and provides crypto-currency market information."

"This South Korean cryptocurrency exchange launched in 2017." "Coinnest [was] once South Korea's third largest [cryptocurrency exchange]." "Coinnest [was] the country’s sixth largest exchange by trade volume, with around 500,000 registered users [in] January [2018]."

"Coinnest was one of three local exchanges raided by prosecutors in mid-March [of 2018], after “suspicious money transfers” between exchanges were detected during an audit by local financial regulators and intelligence services." "[T]he 2nd Financial Investigation Division of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Jeong Dae-jeong) seized and searched three cryptocurrency exchanges in Yeouido for three days from the 12th of last month. At that time, Coinnest was also included in the search and seizure target." "Prosecutors obtained accounting-related data from these cryptocurrency exchanges and started analyzing them for 20 days." "It was during this process that the office of the prosecution stumbled upon information showing the alleged misconduct by the Coinnest CEO."

"Kim was one of the four executives taken in by Seoul police for questioning, according to local newspaper Hanguk Ilbo. It is believed the embezzled funds summed up to KRW1 billion (US$940,000)."

"The prosecution plans to request an arrest warrant for Kim and others from the court soon." "The Seoul Southern District Prosecutors' Office announced on the 5th that they had arrested Kim Ik-hwan, the CEO of Coinnest." "CoinNest co-founder and chief executive Kim Ik-hwan has been detained in Seoul and charged with embezzlement and fraud, alongside two senior executives and the head of a second unnamed crypto exchange, a local news outlet Naver reported April 5." "This is the first time any representative of a Korean digital currency exchange has been arrested."

"Prosecutors believe that they stole funds from cryptocurrency trading customers into accounts in the names of exchange representatives or executives." "The executives allegedly moved customers’ digital assets into their personal accounts, worth “billions of won,” according to prosecutors. Officials are now seeking arrest warrants for the detainees."

"[The] executive of the firm was arrested on suspicion of fraud and was later convicted, receiving a jail sentence and a 3 billion Korean won ($2.5 million) fine."

"The Korea Blockchain Association, a self-regulatory body for 33 local crypto exchanges, is following the investigation to determine whether to expel Coinnest from membership. The exchange opened in June last year, backed by Chinese investors such as Bitmain. Coinnest’s value is estimated at over 100 bln won."

"An announcement by Coinnest on Thursday stated that a “professional management system” has now been set up to “protect[…] customer assets and creat[e] a healthy trading environment.”"

"Coinnest is shutting up shop, citing a drop-off in trade." "The exchange posted a notice on its website saying that as of Tuesday it is no longer operating, adding that users will need to withdraw any funds held on its platform by April 30. The fees for withdrawals and the minimum threshold have been lowered to assist the process, it said."

"It is a natural result of a decrease in trading volume. Both regulatory issues and business decisions have served as a background for this decision."

"As of today, Coinnest is no longer accepting any new customers. The exchange is closing down its operations. Existing customers need to withdraw all their assets prior to 30 June 2019."

This exchange or platform is based in South Korea, or the incident targeted people primarily in South Korea.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Coinnest Platform CEO Embezzlement

Date	Event	Description
March 15th, 2018	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $940,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

There were three major issues. The first was the lack of any background check on the executive team. The second was the way that funds were stored with the majority accessible to the CEO directly, rather than a multi-signature arrangement. Finally, and most importantly, there was a lack of accountability and vsibility to customers to be sure that their assets were fully backed on the platform.

Any one of these would have prevented the situation.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.