Prominent South Korean cryptocurrency exchange UPBit has reportedly been accused by the country’s Financial Services Commission (FSC) of inflating its trading volumes in over 250 trillion Korean Won ($226 billion).
According to local news outlet Korea Herald, the regulator is going after three of the firm’s former employees, including its former CEO. Per the FSC these employees are being charged with fraud after manipulating UPBit’s “data processing system via a bot” to inflate trading volume and leading to market pumps.
The regulator claims UPBit inflating its trading volumes on two separate occasions. Once between October 2017 and December 2017 – when most cryptocurrencies were surging to their all-time highs – and recently on December 18, 2018.
The bot that was used to inflate the exchange’s volume reportedly targeted underperforming cryptocurrencies, and was “easily” noticeable, some reports suggest. An FSV representative was reportedly quoted as saying:
I’m worried about investors who may lose money in this market because of exchanges like UPbit. We need a way to make the market and the industry fair and transparent.
According to prosecutors, UPBit has also sold 11,550 BTC to about 26,000 users, which helped it earn 150 billion KRW ($133.5 million).
Notably, as CryptoGlobe covered, authorities in the country have back in May raided UPBit’s offices as it was suspected the exchange committed fraud. At the time it wasn’t clear what the precise nature of the fraud was, but it appeared it deceived investors with regard to their funds.
The cryptocurrency exchange has earlier today issued a response to the allegations. In its response, it claims the case the FSC is referring to transactions that occurred during a three-month period, between September and December of last year, and that all transactions that occurred after the period aren’t related to it.
Upbit did not commit wash trading (cross trading), imaginary orders (provision of liquidity), or fraudulent trading. The company did not trade crypto-currencies which it didn't own, or have its staff and employees benefit from such trading.
It adds, however, that when UPBit launched – at the time the case related to – it had a “corporate account” provide it liquidity to “stabilize the market.” The account, it claims, used funds owned by the company to add liquidity to its order books.
Later on in its response, it adds that about $200,000 to $300,000 were used to “protect customers from the drastic change of market price and make the market stable.” Although it first points out it didn’t commit wash trading, it soon admits that it did to make sure the spread between buys and sells wasn’t too big.
For about two months after launching the service, some cross trading took place for marketing purposes. However, such trading had no influence on the market price, and the volume of such trading took up about 3% of the total trade volume at that time
Per UPBit, wash trading was made in a way that “didn’t affect the market price,” and accounted for 3% of its total trading volume last year, shortly after its service was launched. Near the end of its response, it notes that it hasn’t sold cryptocurrencies it doesn’t own, or benefited from the process.
Notably, UPBit isn’t the only South Korean cryptocurrency exchange facing difficulties this year. Bithumb, as CryptoGlobe covered, has recently been facing wash trading allegations it denies.