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Kim & Chang Successfully Handles an Unprecedented Criminal Case Involving Virtual Currency Exchanges


The Prosecutors’ Office (“PO”) recently investigated executives and employees of three small- to medium-sized virtual currency exchanges (“VCEs”) upon receiving notice from the Korea Financial Intelligence Unit that representative directors and members of some of the VCEs had transferred funds from the VCE’s accounts to their personal bank accounts.  Following its investigation, the PO indicted and arrested the executives and employees on charges of falsification of private electromagnetic records, fraud, embezzlement and breach of trust.  In this case, Kim & Chang defended the executives and employees of the VCEs (“Defendants”) and successfully persuaded the court to find most of the Defendants not-guilty by putting forth arguments based on specific characteristics of this newly emerging industry.  

At the time of these arrests in early 2018, regulations or guidelines specifically applied to VCEs.  Notwithstanding these circumstances, the PO disregarded the fact that the nascent VCE industry had not had sufficient time to establish market norms and standards and instead indicted the Defendants on allegations of improperly operating the VCEs based on more general industry rules in an attempt to assuage market concerns regarding the risks of virtual currency transactions.

Our Representation

The court accepted Kim & Chang’s arguments that the legal relationship between a VCE and its customers is a “point transaction structure,” a specific type of contractual relationship whereby customers deposit funds, Korean won and virtual money, to the VCEs who in turn credit the customer with points to be used in transactions on the VCE.  Kim & Chang argued that under the point transaction structure, it is not possible to embezzle customer funds because the funds have already been transferred to the VCEs.  In addition, because there was no court precedent as to whether criminal liabilities applied to a “point transaction structure,” Kim & Chang (i) presented to the court convincing data, including academic and industry reports, regarding transaction practices in the virtual currency space; and (ii) submitted survey results evidencing the opinion of general consumers trading virtual currency that were collected in coordination with various legal experts and professionals.  Kim & Chang was able to convince the court of the need to look at VCEs through a different lens due to our creative and distinctive evidential strategy.

The first instance court upheld most of Kim & Chang’s arguments, rendering a not-guilty verdict on key counts including embezzlement and breach of trust.  Although the court found the Defendants guilty of falsification of private electromagnetic records and fraud, the court suspended the execution of these sentences for all of the Defendants, accepting Kim & Chang’s arguments the sentence should factor in a number of mitigating circumstances, including that additional points were topped up for transactions not in the interest of individuals but as part of the standard practice of VCEs.