Reasons for Rejection of Haru Invest and Delio Rehabilitation Cases
Background of the Haru Invest and Delio Cases
A year ago, during the major downturn in the cryptocurrency market, the Haru Invest and Delio scandals unfolded, leaving significant impacts on investors.
While the market has since evolved, with Bitcoin and Ethereum entering mainstream finance through spot ETFs, these cases remain relevant in the legal landscape, particularly concerning rehabilitation and bankruptcy proceedings.
Why Rehabilitation Was Denied
Rehabilitation and bankruptcy cases receive less public attention compared to criminal trials. However, these processes are crucial for victims seeking to recover their losses. While criminal cases focus on punishing wrongdoing, rehabilitation and bankruptcy proceedings determine how the debtor's remaining assets can be distributed to creditors.
Recently, the Seoul Bankruptcy Court rejected the rehabilitation applications for both Haru Invest and Delio, citing three key reasons, primarily aligned with Delio's case:
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Imminent Implementation of the Virtual Asset User Protection Act (Effective July 19, 2024):
The Act mandates the separation of company and investor assets, a requirement Delio cannot meet due to the nature of its business. The court ruled that Delio’s inability to comply with this law renders its business operations infeasible post-rehabilitation. With only two current employees, Delio also lacks the capacity to pursue new ventures.
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Uncertainty of Business Success:
Court-appointed investigators reported that Delio's prospects for success in either its existing or new business endeavors were highly uncertain. The company's structure incurs monthly expenses exceeding KRW 30 million, making continued operations unsustainable.
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Prolonged Asset Recovery Timeline:
The court noted that rehabilitating Delio would result in dwindling resources due to ongoing operational costs, leaving less for creditors. Conversely, immediate bankruptcy would facilitate quicker distribution of assets to creditors, aligning with their best interests.
Bankruptcy Proceedings and Asset Realization
In corporate bankruptcy, when liabilities outweigh assets, a trustee is appointed to manage asset liquidation and creditor claims. This ensures fair distribution of the remaining resources before the company is dissolved.
Key factors in these cases include how effectively trustees can recover assets, particularly cryptocurrency, which can be easily concealed through wallet transfers. Successful recovery often requires close collaboration with criminal investigations to track and seize concealed or misappropriated assets.
Connection to Haru Invest and FTX
During Haru Invest's criminal trial, prosecutors revealed that a significant portion of the lost assets was managed by B&S Holdings, which claims to have creditor claims against the bankrupt FTX exchange. This layered recovery process underscores the complexity and potential delays in compensating victims.
Recommendations for Investors
Investors in Haru Invest and Delio should monitor both the criminal proceedings at the Seoul Southern District Court and the bankruptcy cases at the Seoul Bankruptcy Court. Both avenues are critical in determining the ultimate recovery of their losses.