South Korea Detains Cryptocurrency Executives on Embezzlement Allegations

SEOUL—South Korean prosecutors detained the heads of two cryptocurrency exchanges, including one of the country’s largest exchanges, for allegedly embezzling customers’ assets, the latest in a string of enforcement actions tied to suspected malfeasance in the country’s bitcoin market.

Prosecutors confirmed on Thursday that they had detained the chief of Coinnest, as well as the head of another unidentified bitcoin exchange and two other senior executives. Prosecutors will seek arrest warrants for the suspects pending further investigation, they said. Prosecutors declined to name the other exchange.

Coinnest, whose chief executive is Kim Ik-hwan, is the country’s sixth largest cryptocurrency exchange by bitcoin trade volume in local currency terms, according to research site Coinhills. The exchange platform had roughly 500,000 registered users as of Jan. 23, according to the records of the Korea Blockchain Association, an industry trade group.

According to prosecutors, Mr. Kim and the other three executives transferred tens of millions of dollars worth of customers’ assets to their private bank accounts.

In a statement published on its website Thursday, Coinnest apologized “for causing grave concern,” adding that it had removed the relevant managers from overseeing company affairs.

“We have transitioned to operating under a professional management system,” the statement read. “The new management board is composed of finance, security and technology experts who are committed to protecting customers’ assets and ensuring a healthy exchange environment.”

A spokesman for Coinnest declined to comment further and Mr. Kim wasn’t available for comment.

The prosecutors’ move Wednesday follows a series of raids last month of three large South Korean cryptocurrency exchanges, including Coinnest. A government investigation in January had found that a portion of customers’ assets had been transferred to private bank accounts owned by top managers at the exchanges.

Prosecutors declined to comment on the other two exchanges under investigation.

Cryptocurrency exchanges have proliferated over the past few months in South Korea, a hotbed for trading in bitcoin and other digital currencies, despite a steep decline in bitcoin prices this year. China-based platforms OKCoin and Huobi recently began operating in the country. The Korea Blockchain Association now includes more than 30 local exchange members.