South Korean prosecutors indicted three Upbit executives over alleged fake trading

South Korean prosecutors said on December 21, 2018 that they had indicted three senior figures connected with Upbit, alleging that a fabricated exchange account, automated orders and self-trading had created a misleading picture of activity on the cryptocurrency venue.

The Seoul Southern District Prosecutors’ Office charged Dunamu chairman Song Chi-hyung and two other employees without detaining them. Dunamu operated Upbit, one of South Korea’s largest cryptocurrency exchanges. The accusations concerned activity during the exchange’s early operating period in 2017 and remained unproven allegations on December 21.

The case mattered because customers of a centralized exchange could see prices, order books and reported volume but could not independently determine whether the displayed counterparties possessed the assets represented in their accounts. Prosecutors were effectively challenging the reliability of the exchange’s internal market data, not the integrity of Bitcoin or another underlying blockchain.

What prosecutors alleged

According to the prosecution account reported by Yonhap News Agency, the defendants created an exchange account identified as “ID 8” and entered a balance of 122.1 billion Korean won without depositing corresponding assets. Prosecutors alleged that the account then participated in trading across 35 cryptocurrencies.

Investigators attributed 254.5383 trillion won of orders unlikely to execute and 4.267 trillion won of wash trades to the alleged scheme. Those figures were cumulative notional amounts over the investigated period, not customer losses, company revenue or the value of assets held by Upbit on December 21, 2018.

Wash trading generally describes transactions in which the same party effectively controls both sides, producing turnover without an independent change in beneficial ownership. Prosecutors alleged that ID 8 was used to increase displayed volume and make the exchange appear active. They also said a bot submitted bitcoin orders until Upbit’s price rose relative to competing exchanges.

The indictment further alleged that ID 8 sold 11,550 bitcoin to approximately 26,000 customers for 149.1 billion won. That was the prosecution’s asserted fraud amount, not a judicially established loss. The event-day reports did not provide a transaction-level ledger from which Coinburn could independently reproduce the order, wash-trade or customer counts.

Upbit disputed the case

Upbit denied conducting fraudulent transactions. The company acknowledged using a corporate account during the exchange’s launch period but said the purpose was to provide liquidity and stabilize trading. It said the relevant activity ran from September 24 through December 11, 2017, that the account could not process withdrawals and that the company did not profit from it.

Upbit also acknowledged transactions it characterized as marketing activity, which it said represented approximately 3% of volume during the relevant period and did not affect the market. Those were contemporaneous company claims, not independently verified findings. They also did not resolve the central disagreement over whether the displayed account balances and transactions misled customers.

Prosecutors said they had recovered internal material and a bot program during their investigation. The indictment meant the allegations would be tested in court; it did not establish guilt. No customer withdrawal failure was reported as part of the December 21 announcement, and the exchange continued operating.

Why the case reached beyond Upbit

The dispute exposed a structural weakness in early cryptocurrency markets. Trading venues generally calculated and published their own volume, while customers had limited visibility into corporate accounts, market-making programs or beneficial ownership behind trades. Large displayed turnover could therefore be mistaken for independent demand and deep liquidity.

The defensible conclusion on December 21 was narrow: prosecutors had opened a major criminal case alleging that Upbit executives manipulated internal records and trading activity, while Upbit denied fraud and described its conduct as launch-period liquidity support. The indictment supplied allegations, not a verdict or a reliable measure of wider Korean exchange volume.

Later court context

In November 2023, South Korea’s Supreme Court left acquittals of all three defendants in place. Lower courts found the remaining evidence insufficient, and significant electronic evidence was excluded as unlawfully collected. That later result is included only to prevent the 2018 allegations from being mistaken for established misconduct; it was not knowable on December 21, 2018.