Regulator vows to sue Bithumb users holding ‘unjust‘ Bitcoin after $40bn blunder

Regulators are turning up the heat on traders who haven’t returned the last of the $40 billion Bithumb accidentally gave away in a massive blunder on Friday.

Financial Supervisory Service Governor Lee Chan-jin said that failing to return the money could subject investors to criminal proceedings, Chosun Ilbo reported.

“It’s clear that these cases are incidents of unjust enrichment,” Financial Supervisory Service Governor Lee Chan-jin told reporters on February 9, South Korean media outlet PennMike reported.

“These claims are subject to restitution.”

Bithumb’s $40 billion blunder

Bithumb paved the way for the turmoil with what seems to be a fat-finger error.

The South Korean crypto exchange intended to send a total of $423 in Korean won to 249 customers who participated in a lucky draw-type giveaway on Friday.

But the team mistakenly selected Bitcoin, rather than the Korean won, as the unit of measure when sending the rewards, resulting in the exchange sending out $40 billion worth of Bitcoin.

Bithumb was able to freeze the wallets of most of the recipients, but some giveaway beneficiaries immediately liquidated their coins or traded them for other cryptocurrencies.

Bithumb said these customers have failed to repay $9 million in Bitcoin.

The gaffe stoked ire among regulators, who have already launched an inquiry at Bithumb’s Seoul headquarters.

It has also fuelled resentment among financial authorities, who have increased their scrutiny of South Korean exchanges in recent weeks.

The intensifying scrutiny includes a price manipulation probe and efforts to limit stakeholders’ ownership of crypto trading platforms.

A precarious position

Lee warned Bithumb customers who have not returned their money that they are “in a catastrophically precarious position.”

However, media outlets say legal precedent from a previous Bitcoin case could hinder Bithumb’s efforts to recoup its lost $9 million.

In 2021, the Supreme Court ordered a retrial in the case of a trader who had been convicted of breach of trust after mistakenly transferring around $1 million in Bitcoin to another crypto wallet.

The court ruled that cryptocurrencies are not subject to breach-of-trust rules because they do not qualify as “property” under South Korean law, South Korean newspaper Joongang Ilbo reported.

Lawyers agreed that while the legal system lets banks recover mistakenly transferred funds, it does not provide the same level of protection to crypto exchanges.

“Legal precedent dictates cryptocurrency is not property in the sense required to convict the customers of embezzlement,” Han Sang-jun, a lawyer at the legal firm Daegun, told Joongang Ilbo.

“Criminal trials may prove difficult to execute.”

But Han said that as the legal and economic landscape has changed significantly since the 2021 ruling, courts may be willing to “reconsider” the Supreme Court’s stance.

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at tdalper@dlnews.com.