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BlogsClaim for Damages Against a Domestic Cryptocurrency Exchange
If a cryptocurrency exchange failed to suspend transactions or halt trading despite being informed of a hack involving the issuing foundation of a listed token, resulting in investor losses, what liabilities could the exchange face? Breach of Duty of Care Cryptocurrency exchanges have a duty to protect investors by taking appropriate measures during incidents such as hacking. If an exchange was aware of a hacking incident but failed to suspend trading, this could be considered a breach of its duty of care. Relevant precedents also support this viewpoint. Breach of Contract If an exchange promised to replace an affected token with a new token at a 1:1 ratio but failed to fulfill this commitment, resulting in significant losses for token holders, the exchange may be held liable for breaching its contractual obligations. Unlawful Acts and Liability for Damages Exchanges are obligated to take proper measures to protect investors. If they neglect these responsibilities, their actions could constitute an unlawful act, making them liable for damages under applicable laws. Korean cryptocurrency exchanges are expected to prioritize investor protection. Failure to meet this standard could lead to legal claims for compensation.
2024-09-13 X (Twitter) -
Blogs
Risks of Domestic Cryptocurrency OTC Transactions
Definition of Cryptocurrency OTC Transactions Cryptocurrency OTC (Over-the-Counter) transactions involve the exchange of fiat currency, such as Korean won (KRW), into USDT (Tether) on a continuous, repetitive, and profit-driven basis. How It Works An OTC broker receives requests from specific organizations and facilitates transactions by: Receiving fiat currency (KRW) from individual customers into their account. Depositing the equivalent USDT from their holdings into the customer’s cryptocurrency exchange account as designated by the organization. Charging a commission fee, typically around 5% of the transaction amount. Violation of the Specific Financial Information Act (Special Act) Cryptocurrency OTC operators may be at risk of violating the Specific Financial Information Act (Special Act) in South Korea. If a business engages in repeated brokerage of cryptocurrency transactions for profit without proper registration, it constitutes a violation of the Special Act. The risks escalate significantly if the transactions involve illicit funds, such as those related to phishing schemes, drug money, or gambling proceeds. Special Act Article 7(1): Any business operating cryptocurrency transactions must register with the Financial Intelligence Unit (FIU). Special Act Article 17(1): Failure to comply may result in imprisonment of up to 5 years or a fine of up to 50 million KRW. Legal Precedent and Penalties Recent court rulings in South Korea have affirmed that individuals engaging in continuous, repetitive, and profit-driven cryptocurrency brokerage are classified as Virtual Asset Service Providers (VASPs) under the Special Act. In a notable case, the court imposed a 1 year and 6 months prison sentence based on the frequency and scale of transactions. This decision underscores the gravity of conducting cryptocurrency brokerage without proper registration. Key Takeaways Businesses conducting cryptocurrency transactions as a commercial activity must register with the Financial Intelligence Unit to comply with the Special Act. Violations can lead to severe penalties, including imprisonment and fines. Given the potential misuse of cryptocurrencies in criminal activities such as phishing and money laundering, stricter regulatory measures are necessary to ensure compliance and safeguard the financial system.
2024-09-12 X (Twitter) -
Media Coverage
Fraud Crimes Increased by 10% in the First Half of This Year, 'Online Scams Using Platforms like Telegram Surge'
The number of fraud crimes reported to the prosecution in the first half of this year increased by 10% compared to the same period last year. Experts have analyzed that fraud through social networking services (SNS) such as Telegram and Naver Band has surged. (omitted) Experts noted that scams using platforms like Telegram, Naver Band, and KakaoTalk open chat rooms have become more frequent, leading to a significant increase in victims. While messengers like Telegram were previously used mainly by younger people, more older users have recently joined, resulting in scams targeting people of all ages. Two prominent examples are stock-leading chat room scams and romance scams. Stock-leading room scams involve promising high returns and deceiving victims by claiming to share stock information. Victims are lured into paying to join paid chat rooms with the promise of receiving premium information, only to have hundreds of thousands of won stolen. Romance scams involve fraudulent activities disguised as romantic relationships. A recent example is the case of Jeon Cheongjo, who scammed former fencing national team member Nam Hyun-hee. Other common tactics include scammers posing as foreign military personnel or refugees, sending messages like "I want to come to Korea" or "I want to meet you" to lure victims into sending money. In online scams, while victims often send money via bank transfers, experts have noted an increase in cases where payments are made in virtual assets, making it nearly impossible to recover the stolen funds. Pureun “Ian” Hong, managing partner at Decent Law Firm, commented, "Recently, a wide variety of scams have surged on platforms like open KakaoTalk chat rooms, Telegram, and Naver Band. The common characteristic of these scams is that the perpetrators introduce themselves in an unverifiable online setting and then ask for money. People should be cautious about sending money to individuals they cannot verify."
2024-09-11 Financial News -
Blogs
Supreme Court Ruling: Legal Characteristics and Specificity of Virtual Assets in South Korea
The Supreme Court of South Korea has defined virtual assets as "digital representations of economic value that are not controlled by the state but are granted value through blockchain or other encrypted distributed ledgers, qualifying as property benefits" (referencing Supreme Court Decision 2021Do9855, November 11, 2021). The Court emphasized the distinct characteristics of virtual assets, such as the ability to verify only the addresses of electronic wallets without identifying the user's personal information, and the distributed recording of transaction histories, which set them apart from traditional assets. Furthermore, the Supreme Court noted that virtual assets are not subject to the same level of regulation as legal tender and involve inherent risks in transactions. Consequently, the Court concluded that virtual assets do not warrant the same level of legal protection as legal tender under criminal law.
2024-09-10 X (Twitter) -
Media Coverage
Unregistered Operator BTCC Engages in Illegal Activities Again: 'Korean Language Support and KRW Deposits Available'
It has been revealed that the unregistered virtual asset service provider (VASP) BTCC is promoting Korean language support and KRW transfers while proposing partnerships to domestic blockchain companies. On August 27, it was confirmed that BTCC sent an email to domestic blockchain company A on the afternoon of August 26, offering a partnership with BTCC, which supports the Korean language and accepts KRW deposits. (omitted) Hyeonsu “Elliot” Jin, managing partner at Decent Law Firm, pointed out, "KRW deposits, card usage, and bank account registration could potentially violate the Act on Reporting and Using Specified Financial Transaction Information (Special Act) and the Electronic Financial Transactions Act." Jin further stated, "Since BTCC has not obtained a business license under the Special Act, it seems clear that they are operating illegally." He added, "Since card companies block virtual asset payments, it's unlikely that payments will be processed normally, and there is a risk of involvement in money laundering through illegal means such as bypass payments."
2024-08-28 Digital Asset -
Media Coverage
Coin Exit Scam Delio Shifts Loss Responsibility to Users by Amending Terms and Conditions
Delio, a virtual asset deposit service currently on trial for the '2.5 billion won coin exit scam,' has been accused of secretly amending its terms and conditions to avoid responsibility for deposit losses, shifting the burden to users. Initially, the company attracted users by promising to guarantee the principal, but without notice, it altered the terms to make users responsible for any losses. Legal experts have pointed out that if the terms were changed in a way that disadvantages users, the revised terms should not be applied retroactively to existing users. According to the virtual asset industry on the 14th, Delio recently submitted its 'virtual asset deposit service terms and conditions' to the Seoul Bankruptcy Court, where its bankruptcy proceedings are underway. The last amendment to these terms was made in September 2022, and it includes a clause assigning the responsibility for deposit losses to users. Article 5, Clause 2 of the terms states that 'all responsibility for losses incurred from deposit products invested in at the user’s discretion shall be borne by the user.' (omitted) Legal experts criticized Delio for failing to uphold its moral responsibility as a virtual asset service provider. Typically, when financial institutions amend terms and conditions in a way that disadvantages users, they do not apply the changes retroactively to existing users. However, if a financial institution seeks the consent of users for the amended terms, even disadvantageous provisions may be applied retroactively, according to legal opinions. Pureun “Ian” Hong, managing partner of Decent Law Firm, stated, "Since Delio's deposit service terms were amended in a way that disadvantaged users, Delio should have sought user consent for those changes."
2024-08-14 ChosunBiz
