Crypto firm executives accused of taking police-held bitcoin

A large amount of bitcoin held in custody at the Seoul Gangnam Police Station was allegedly siphoned off by executives of the cryptocurrency firm that had originally reported a hacking incident, authorities said. One of the suspects is also standing trial for allegedly aiding a violation of the Political Funds Act in a separate case involving Jeon Seong-bae, widely known as “Geonjin Beopsa,” over suspected nomination bribery.

The cybercrime unit of the Northern Gyeonggi Provincial Police Agency said Thursday that it had sought arrest warrants for a man in his 40s who serves as the company’s CEO and another man in his 40s surnamed Lee, identified as its de facto operator. They are accused of hacking under the Information and Communications Network Act and computer fraud under the Act on the Aggravated Punishment of Specific Economic Crimes. During questioning, the CEO reportedly admitted to the allegations, telling investigators that the company faced severe financial difficulties after the hacking incident and needed funds. Lee, however, is said to have denied the charges.

Lee has also been confirmed to be on trial on charges of aiding a violation of the Political Funds Act in connection with allegations that Jeon received money in exchange for nomination favors. Prosecutors allege that ahead of the 2022 local elections, Lee was involved in transferring political funds as Jeon’s side sought party nominations. Police said they also uncovered indications that Lee attempted to mislead investigators by falsely claiming during questioning that another hacking suspect, surnamed Jung, who had fled overseas, was responsible for taking the coins.

The case dates to 2020, when the company reported to the Seoul Gangnam Police Station that its proprietary cryptocurrency had been hacked. During the investigation, police identified an account opened under a third party’s name that had been used without authorization and received 22 bitcoins from that individual through voluntary submission, seizing them around November 2021. However, instead of storing the assets in a police-controlled virtual asset cold wallet, authorities kept them in a cold wallet owned by the company that had requested the hacking probe. Police also failed to secure the mnemonic code required to access the wallet.

Investigators believe Lee and others later used the mnemonic code and related information to restore and transfer the 22 bitcoins, which were being held at the Gangnam station, to another wallet on May 6, 2022. At the time, the bitcoins were worth about 1 billion won. The two suspects are believed to have liquidated the entire amount and used the proceeds. A police official said that in 2021 seizures of virtual assets were rare and the rules governing their storage were not as clearly defined as they are now, adding that officers at the Seoul Gangnam Police Station appeared not to have been fully familiar with the relevant procedures.


천종현 punch@donga.com