Do you remember all those news reports that came out around the beginning of September (2020), alleging that the owner of Bithumb had been arrested and the exchange seized for its participation in various financial crimes?
Well, as you probably guessed, that was only a fraction of the whole story told to Western audiences (perhaps under the assumption that no one in blockchain would be able speak both Korean and English to serve as a bridge between both audiences).
CoinDesk Fails to Comprehensively Report on Crypto Crime (Again)
Headlines such as the one above are beginning to get a bit redundant, but they must be given regardless.
Here is a link to the CoinDesk article in question that provides some acknowledgment of the situation as it was unfolding: https://www.coindesk.com/police-raid-headquarters-for-bithumb-koreas-largest-exchange
Unsurprisingly (at this point), the article simply glosses over some of the peripheral facts in the case, which are framed in a way to purposefully impose doubt on the reader as if the raid / arrests may or may not have happened when there is clearly, unequivocal evidence that they did.
The 'article' (if we can call it that) only consists of 9 different bullet points, one of which is as simple as:
"The exchange appeared to still be active at press time."
Fortunately, the original South Korean publication that covered this incident did so in an extremely comprehensive manner, which allows us to properly examine the Bithumb issue properly.
Assessing What Really Happened When Bithumb Was Seized
The link to the South Korean-based publication referenced above is: https://www.seoul.co.kr/news/newsView.php?id=20200902500113&wlog_tag3=navez
Quick Note For English Speakers
The article is written in Korean and since all Librehash content is in English, its probably safe to assume that there are many more English speakers / readers than Korean ones.
So, if you're like the author and do not possess the ability to read and write fluently in Korean, then these next few tips should help.
If you can, pull up one of the following browsers:
- Chromium (plain, non-Google but not without Google)
- Google Chrome
- Brave browser (a fork of Chrome)
Once you have pulled up the browser, there should be the option there for you to convert the page to English.
If for whatever reason, you're unable to render the translated version of this article, all hope is not lost.
I decided to copy/paste the translation of the story and then host it up on a 'HackMD' document (non-editable by anyone on the outside that comes across the same link as you).
That translated version is located here: https://notes.librehash.org/s/SknUkhjKw
Now you can follow along with the rest of our dissection.
Digging into the Meat of the Story
Bithumb was the largest exchange in the nation of South Korea at the time the authorities toppled it, so this was a major takedown.
The police were going directly after the owner (chairman) of the exchange, 'Lee Jung-hoon'
Closer examination of the story shows that perhaps the issues that the police had with Bithumb were more so relegated to Jung-hoon's action (perpetrating fraud among many other financial crimes) versus the exchange itself (an important distinction). This may be the reason for why the exchange was still able to operate following the raid by South Korean police on its HQ
Primary Issue: 'What Was Lee Jung-hoon Arrested For?'
Apparently, Bithumb (more specifically, Lee Jung-hoon) held a fundraise of some sort for the 'BXA token' at some time in the past, but failed to produce a product in return for said investors.
That fundraise ended up bringing in about $26 million (in USD ; 30 billion Won)
In relation to the specific accusations that Lee Jung-hoon faces, the article states:
"Bithumb beneficial owner Lee Jung-hoon (44), chairman of the board of directors of Bithumb Holdings and Bithumb Korea, has been under the police investigations for fraud and escape of property abroad (violation of the Act on aggravated punishment for certain economic crimes)."
There's some useful information we can extract here.
Namely the two entity / corporate names that were given for Bithumb:
- Bithumb Holdings
- Bithumb Korea
The charge for fraud is pretty clear but the "escape of property abroad" is clearly a mistranslation.
Fortunately, there are other translators (and helpful human beings) that were instrumental in helping us ascertain the latter accusation being made against Lee Jung-hoon (and Bithumb).
Bithumb and Espionage?
Turns out that the 'escape of property abroad' was a mistranslation for the word 'espionage' (which makes slightly more sense, but doesn't seem to hit the nail on the head).
But what kind of "espionage" would an exchange be involved with? This seems like a bit of an odd crime.
After all, we've heard of exchanges being involved in a number of financial crimes (with seemingly no limit to the # of crimes that have been committed by said entities in this realm), but we have yet to see evidence of these subversive activities being attached to any kind of nation-state level activities (with political motivation).
Investigations on Bithumb Began Back in 2017
8btc, a blockchain-focused outlet that serves as one of those rare bridges between the 'East' and 'West' in blockchain by providing in-depth information on various entities in the East that would not have otherwise been covered in Western publications for one reason or another.
The article referenced here is titled, 'South Korean Gov't Investigating Bithumb Security Breach, World's Largest Cryptocurrency Exchange' and is authored by Joseph Young, one of the more well-known and prolific authors in the blockchain space.
At the time of that article's release, nobody thought that Bithumb itself was the subject of whatever investigation was taking place. Rather, it appeared that the South Korean investigative unis were simply looking to take proactive measures in defense of its citizens' information and businesses [this initial probe was prompted by the theft of information belonging to over 30,000 customers at Bithumb].
We'll take a second to double back and check on the suspicious string of 'hacks' that have occurred on the Bithumb platform later (including the alleged $19M 'inside job' that occurred sometime in 2019).
For now, its worth taking a look at this BXA token that Lee allegedly defrauded investors with.
As a refresher, the translated portion of the article that mentions this token is re-published below:
"According to the Seoul Metropolitan Government, the search for seizure is related to suspicion of investment fraud related to the issuance of BXA token, which is a cryptocurrency, while Chairman Lee negotiated the sale of Bithumb with BK Group Chairman Kim Byung-gun (57) in October 2018. BXA victims have claimed that Chairman Lee and others have inflicted damage by not actually listing even though they pre-sell 30 billion won in the name of listing BXA on Bithumb."
What Do We Know About BXA ?
Not too much based on the information above, but that's only because we have yet to carve into additional sources that probe into Bithumb raid and other questionable activities by the exchange in substantially greater depth.
Luckily for us, there was a follow-up to the original article published by the same South Korean paper that published the original report.
The link to this follow-up report can be found here = https://www.seoul.co.kr//news/newsView.php?id=20200903009027&wlog_tag1=coinsherlock
Once again, the article has been translated and ported (for the convenience of all English speakers that are unable to get their browsers to auto-translate it for them): https://notes.librehash.org/s/BJPElhiFv
Essentially the second report goes into more detail about the alleged fraud perpetrated with the BXA token.
Specifically, the report notes that:
- South Korean officials were looking to determine whether the owner of the exchange (Lee Jung-hoon) was the primary individual responsible for perpetrating the fraud that was BXA's token launch and subsequent token sale.
- Tied into the investigation is 'Kim Byung-gun', a "BK Group Chairman" (remember, BK Group attempted to acquire Bithumb at some point in time).
- The article goes on to state that approx. 30 million Won was raised from investors for these tokens (approx. $25-26 million worth), yet they were effectively worth nothing as the exchange failed to release the tokens on their exchange for trading or grant the purchasers in the equity their fair share for investment.
- Additionally, the report clarifies that they are suspicious of a 400 billion won investment into 'Bithumbs Holdings' stock ($354 million; more on this in the next section).
Let's Pause For a Second and Recap
There's a lot that's going on here at this point, which may lead to some getting lost (and we dont want that). So let's step back, take a second and recap what we know to be true now.
A) Bithumb is a large cryptocurrency exchange in South Korea. Their primary leader at the time of apprehension in September, was Lee Jung-hoon
B) For one reason or another, Bithumb decided to raise a ton of money for a token ($BXA), but failed to list it or do anything meaningful with it - which makes that fundraise entirely fraudulent.
C) Since Bithumb took in >$25 million of investment for this token specifically, it should be of no surprise that at least a few angry customers went to great lenghts to petition South Korean law enforcement agencies to get involved.
D) It appears that the initial investigation conducted by South Korean authorities actually led them to uncover greater malfeasance on the part of Bithumb than originally anticipated, which is probably what led to the second raid of the exchange, which came just a few days after the initial raid
The real smoking gun, however, appears to be nestled somewhere among the following entities:
- BK Global Consortium
- BTC Holding Co.
- BTC Korea Holdings
- Vidente / Omnitel (shareholders in Bithumb as well that are rarely mentioned for some reason) ; "Vidente Co Ltd" / "Omnitec Inc" [full business names, makes research a bit easier; https://fr.reuters.com/article/uk-markets-bitcoin-southkorea-idUSKBN1E7048]
- "Bithumb is operated by BTCKorea. 76% of its shares are owned by BTC Holding Company, 10.6% by Vidente, and 8.4% by Omnitel."
- "Both Vidente and Omnitel, however, own 10% and 6% respectively of BTC Holding Company’s shares."
- "'Omnitel is owned by Sang-woo Kim."
- "As for Vidente, its biggest shareholder is Bit Galaxia Investment Company. Bit Galaxia Investment Company was founded by WIZIT and Jae-wook Kim, CEO of ARTISTCOMPANY."
- "In summary, the Vice-Chairman of Etoday is the largest shareholder of WIZIT, Vidente, Omnitel, and most likely the biggest shareholder of BTCKorea, which operates Bithumb."
- "Allegedly Bithumbs’s largest shareholder is behind the recent news of a prosecutor raid at UPbit."
All quotes above were pulled from here: https://thenews.asia/rumor-bithumbs-largest-shareholder-behind-the-recent-upbit-news/
Bonus Information: Identifying Bithumb's Law Firm
Worth noting that a substantial amount of evidence from numerous sources suggests that Sang-Woo Kim is indeed the guy at the very top of all of this (not Lee Jung-hoon; although this is not to exonerate Lee - just providing clarification).
Additional Evidence of Note
- Completely breaks down the ownership structure of Bithumb (pretty damn comprehensive to be honest) = https://www.blockmedia.co.kr/archives/136040
- Outlines JeongHoon Lee's new position as the "chairman" of Bithumb - so obviously that was a recent development that occurred some point this year (2020).
- "Police investigate Bithumb real owner Lee Jung Hoon on charges of 'escaping property' (again, what I get from a translation, take it or leave it)" = https://www.blockmedia.co.kr/archives/144309
- "BTOne, a Key to the Crown of Bithumb Manaement, goes to the CEO JaeWook Kim" = https://www.blockmedia.co.kr/archives/137469
This is only the conclusion of the first part of our deep dive investigation into the exchange, Bithumb. There appears to be significant additional evidence suggesting that a considerable amount of money laundering was taking place at the exchange.
And since we haven't touched that 'raw' aspect of things yet, we're going to double back around for a part two to ensure that we've left no stone unturned in our quest to figure out just what the hell was / is going on over in Korea with their blockchain exchanges.
Quick Notes in Closing:
If there are any individuals of South Korean descent or that are currently domiciled in South Korea that would like to provide feedback, please do not hesitate to reach out.
If you are of South Korean descent (or highly familiar with South Korean culture and norms), and noticed that I was inaccurate / insensitive in any of my characterizations in this piece, please do not hesitate to reach out and let me know - I'll be more to make those changes before providing you with a prompt response to let you know that the piece has been updated.
Purpose: Looking to break down the huge language barrier dividing one half of the world from the other half in blockchain (news originating in the West sometimes takes equally as long to propagate over on the East, if at all & vice versa). There are certain actors that will take advantage of the fact that all thorough accounts of a given incident or investigation are written in a language that the entity's audience may not be familiar with. This happens with surprising frequency in the blockchain space (at least if you're an English speaker in the Western hemisphere); I cannot speak to how bad or not bad that it is for those on the Eastern hemisphere.