[Executive Summary]

• Dunamu, the operating entity of a virtual assets exchange Upbit, and Bithumb faced a ferocious line of questions on October 6th at the annual National Assemby’s Audit of State Affairs regarding involvement in the Terra-Luna incident and allegations of manipulating the market price of virtual assets through cross trading, collusion, etc.

Dunamu, the operating entity of a virtual assets exchange Upbit, and Bithumb faced a ferocious line of questions on October 6th at the annual National Assemby’s Audit of State Affairs (“Audit”) regarding involvement in the Terra-Luna Incident and manipulating the market price of virtual assets.

At the Audit of the Financial Services Commission, the focus was on the issues regarding virtual assets such as the Terra-Luna incident. Lee Seok-woo, the CEO of Dunamu, and Lee Jung-hoon, the former chairman of Bithumb had been summoned as witnesses, but only Lee Seok-woo made the appearance at the Audit.

Members of the National Assembly raised the issue of on-going trial of Song Chi-hyuung, the chairman of Dunamu on charges of fraudulent activities by placing imaginary (fake) orders, cross trading, and formation of fake accounts. Lee Seok-woo argued that Dunamu was found not guilty in the first trial as the prosecutors were not able to prove the alleged charges and that he cannot comment any further as the second trial is still ongoing.

However, Lee Seok-woo added that he believes Dunamu has taken fair and transparent measures when it comes to protecting the investors, and that there need more definite rules regarding virtual assets, as there is a lack of objective standards.

Also, suspicions about Upbit self-listing Luna coin were raised, as Dunamu Partners, the subsidiary company of Dunamu, invested 63.5% of the initial shares of Luna coin issued and earned a profit margin of about 130 billion KRW. A member of the National Assembly pointed out that the fact that Luna was listed on the Bitcoin market was a “self-listing.”

Regarding Bithumb, a member of the National Assembly interrogated the CEO of the issuance company of Arowana coin, questioning whether there was a collusion of market price manipulation in the process of listing the coin at Bithumb, the virtual assets exchange. Last year, there were suspicions of price manipulation when the Arowana coin’s price skyrocketed to about 50 times the initial price within 30 minutes of its listing at Bithumb.

The Korean virtual asset market has started to increasingly attract the attention of Korean lawmakers, who have already been observing the industry. This may lead to increased pressure and calls for stricter laws and regulations in the market for virtual assets, such as the outlawing of specific kinds of stock market-style transactions (prohibition of market price manipulation, market disturbances, unfair trading, etc.). Make sure to regularly check our blog as our firm will continue posting on the potential development in relevant legislation and administration.