Komid Crypto Exchange Managers Sent to Prison for Generating Fake Volumes

Two executives from South Korea-based digital currency exchange Komid have reportedly been sentenced to serve time in jail as they have been charged with “fraud, embezzlement, and misconduct”, according to local news outlets.

Found Guilty Of Manipulating Trading Volumes For Personal Gains

Choi, who is the CEO of Komid, was sentenced to 3 years in prison on January 17th. Meanwhile, the other executive, Park has been given a 2 year prison sentence after both men were found guilty of “orchestrating fraudulent trading volume reports on their platform.” Prosecutors claim that both Choi and Park were involved in a scheme in which they “fabricated” 5 million transactions on Komid, a crypto trading platform that both the executives manage.

The prosecutors alleged that the fake volumes were used to deceive traders into thinking the exchange was handling a large number of orders. As mentioned in court documents, the two executives earned around $45 million, mainly from exaggerating trading volumes on their digital currency exchange.

Committing Fraud Against "Countless Number Of Victims"

Commenting on the exploitative activities, the presiding Judge stated:

Choi has committed fraud for a countless number of victims for a long period of time…. Furthermore, he holds the financial authorities responsible for failing to keep track of the industry better.

Admitting to have engaged in fraudulent activities, Park revealed during the court hearing:

Choi entered false orders, then we repeated the process and fooled investors into thinking the transactions were authentic, organic trades.

Notably, an executive from another major Korean crypto exchange, UpBit was also indicted last month for entering false orders in order to artificially inflate trading volumes. Other staff members from UpBit were charged with allegedly creating fake membership accounts and then making deposits, in an attempt to deceive users.

Exploitative Bithumb Trader Generated $250 Million In Fake Volume

As CryptoGlobe reported in September 2018, Bithumb, one of South Korea’s largest crypto exchanges (in terms of trading volume), was being exploited by a user as they had regularly been generating $250 million in “fake volume” on the platform. Alex Krüger, an economist and market analyst, had pointed out that the millions in fake volume were being traded at Bithumb “every day at 11 AM Korean Time since August 25th” 2018.

The Argentinian digital currency trader explained that one particular user had been taking advantage of Bithumb’s promotional offer. The Korean exchange had been giving users up to 120% payback on all trading fees paid by users through airdrops on a “first come first served basis.”

The exploitative user had reportedly been trading with himself, in order to receive much larger paybacks. This process was described as being similar to “wash trading” as the user had continuously entered “two opposite limit orders.” The abusive activity reportedly allowed the trader to earn $150,000 per day, according to Krüger’s calculations.

Sub-accounts in Crypto: What They Are and How They Work

 

Julia Gerstein, a crypto trading bots enthusiast and a content writer at TradeSanta. My final goal is to help readers find what they need, understand what they find, and use what they understand appropriately.


Speaking generally, a sub-account is a segregated smaller account that is tied to a larger primary account. Sub-accounts may serve different functions depending on the objectives of their owners. The term can refer to multiple email addresses linked to one user or secondary accounts tied to a primary account with a financial institution or a bank.

For this article, we will be looking at sub-accounts as they exist in the crypto industry, and specifically on trading platforms.

Built-in Sub-Accounts

On trading platforms, the sub-accounts feature allows users to create a set of subsidiary accounts with different trading strategies, funds and end customers. On some platforms, general accounts already come with built-in sub-accounts.

For example, exchange platform Crypto Facilities provides each user with cash and margin accounts when they sign up. While deposits and withdrawals are completed with the cash account, trading an instrument requires users to make an internal transfer from a cash account to their margin account that corresponds to the instrument in question.

Each instrument has its own margin account. This grants users more control over their funds and allows them to manage risks for each instrument separately from their main balance.

Optional Sub-Accounts

Other cryptocurrency exchanges, such as Gemini and Binance, have launched sub-accounts as an optional feature for institutional investors.

As an optional feature, sub-accounts can serve to introduce additional security measures and different access levels between the main account and its subsidiaries. Binance has underlined the differences between a master account and its subsidiaries, providing the former with the exclusive ability to view all data and balances, transfer funds between accounts, and have full managerial control and access to a range of asset audit tools.

Here master accounts have sole control over the movement of assets between sub-accounts, and can grant each of them different access levels and permissions. This ensures that the main account has the power to direct and monitor the actions of all its associated accounts, while each sub-account can perform its function independently from other sub-accounts.

Not Only for Institutional Investors

While institutional investors have been able to create sub-accounts for a while, this feature is still being introduced by more and more major exchanges.

Now even individual investors can create subsidiary accounts to try and assess the performance of distinct trading strategies. For example, HitBTC recently introduced its own sub-accounts feature that is now available per user’s request.

At HitBTC, sub-accounts enable users to create separate subsidiary accounts with which they can utilize various trading styles and strategies with operational autonomy. While each sub-account is separate, all of them are still tied to a master account and contribute to the cumulative volume of all accounts connected to the master.

Because trading volume is measured cumulatively, the use of the subaccounts feature can open up additional benefits for traders such as lower commissions due to progressive fee tiers that reward users for contributing to the liquidity on the trading platform.

Therefore, users can perform a variety of different trading activities unconnected to each other, and all the activities will still weigh in the financial favor of the parties involved. Master accounts also have access to important data such as the performance of each sub-account and total trading fees of all linked accounts combined. While the feature is designed with institutional and corporate clients in mind, on HitBTC any user can create sub-accounts upon request.

The adoption of this feature by more and more trading platforms will be beneficial for both institutional and individual traders. Some users can utilize it to execute different trading strategies or try various algorithms with a clear picture of their effectiveness, others to manage their team and analyze the performance of each account securely and conveniently.

Featured image by Tyler Franta on Unsplash