The storm clouds are gathering over Delio, the prominent South Korean cryptocurrency lending platform.
In the wake of the company suspending deposits and withdrawals on June 14, the nation’s Financial Services Commission (FSC) is now launching a thorough investigation into serious allegations including fraud, embezzlement, and breach of trust involving the platform.
The regulators move in
The Financial Intelligence Unit (FIU), a specialized body of the FSC, has reportedly secured data related to Delio’s cryptocurrency operations and financial transactions.
The move aims to scrutinize various suspicions that emerged following Delio’s suspension of transactions. In addition, the FIU is performing on-site investigations to substantiate its findings and uncover any possible illicit practices.
Delio’s legal woes don’t stop with the FSC, however. The company also finds itself in the crosshairs of the prosecution. Several victims, following the suspension of transactions, have filed lawsuits against Delio’s management at the Seoul Southern District Prosecutor’s Office, levying charges of fraud, embezzlement, and breach of trust.
The ramifications for Delio’s top brass, including CEO Jeong Sang-ho, have been immediate and stringent, with travel bans issued preventing them from leaving the country.
Delio’s web of intrigue
Delio, as a reported virtual asset operator (VASP), falls under the regulatory purview of the FIU. On June 13, the platform halted withdrawals of key virtual assets like Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP).
This decision came hot on the heels of Haru Investment, another digital asset manager, stopping its own deposits and withdrawals.
Despite Delio initially claiming that the suspension of transactions was unrelated to Haru’s actions, the company later acknowledged the simultaneous timing of the deposits.
However, as Haru is not registered as a VASP with the government, it does not come under the FIU’s regulation, despite its management also facing lawsuits from the prosecution.
A protective framework emerges
In the broader context, these investigations are part of a concerted effort by the South Korean government to enhance safeguards for cryptocurrency investors.
On June 30, the National Assembly passed the Virtual Asset User Protection legislation, designed to regulate unfair trade practices and shield investors within the crypto space.
This comprehensive legislation combines 19 cryptocurrency-related bills into a singular act. It clearly defines digital assets and establishes penalties for illicit trading activities, such as market manipulation and the misuse of undisclosed information.
The primary focus of the Act is to apply the Capital Market Act first to virtual assets with securities characteristics.
Importantly, the new law places a significant responsibility on VASPs like Delio. These platforms are now required to insure users’ deposits and take responsibility for their protection, guarding against risks such as hacks and computer failures.
As regulators target Delio and the government enhances its protective measures, the question remains: Will these efforts prove sufficient to shield South Korea’s thriving cryptocurrency market from further scandals? Only time will tell.
