2024-03-11 08:29:00
Haru Invest logo.
The Haru Invest fraud case, which deceived customers and stole 1.4 trillion won worth of virtual assets, was revealed to have started to save a company that was in a state of capital erosion. When the ‘algorithm trading’ technique, which claims to generate returns of more than 12-16% per year but has no risk at all, did not work, they even created a fabricated profit certification post to hide this.
According to the virtual asset industry and the legal community on the 11th, the Seoul Southern District Prosecutor’s Office’s Virtual Asset Crime Joint Investigation Team arrested Mr. A, co-representative of Block Crfollowings, who operated the Haru Invest business, on charges of fraud under the Act on Aggravated Punishment of Specific Economic Crimes, etc. on the 22nd of last month. and Mr. B were arrested and indicted, and the Chief Operating Officer (COO) Mr. C was indicted without detention on the same charges. They are suspected of stealing virtual assets worth 1.3944 trillion won from 16,347 investors.
◇ ‘Capital erosion’ Haru Invest
According to the indictment, Mr. A and others launched the Haru Invest business in August 2019. Just like a deposit that earns interest when you deposit cash in a bank, it was a business that would pay profits in the name of interest if you deposited virtual assets such as Bitcoin, Ethereum, and Tether with them. Similar to securities companies’ comprehensive asset management accounts (CMA), they also sold a ‘Haru Wallet’ product that allows users to deposit and withdraw virtual assets at any time while paying interest daily. Block Crfollowings promised to guarantee an annual return rate of 12-16% and principal amount.
However, by the time this business was launched, Block Crfollowings, which runs the Haru Invest business, was in a state of capital erosion. Looking at Block Crfollowings’ summary financial statement as of the end of December 2019, liabilities were 2.767 billion won and capital was 113 million won, which was more than total assets (1.493 billion won).
In the end, Block Crfollowings began paying employees’ salaries and repaying debts with virtual assets entrusted by customers in March 2020, regarding seven months following launching the business. The money siphoned off for company operating expenses amounted to 41.9 billion won over three years. Losses of virtual assets deposited by customers were accumulating, and Block Crfollowings suspended all deposits and withdrawals from Haru Invest on June 13 last year.
◇ Algorithm trading with losses
Why did investors believe the absurd claims of 12-16% annual returns and guaranteed principal? Here, there was a plausible promotion of Block Crfollowings’ ‘algorithm trading’. Algorithmic trading is known as a trading technique that utilizes price differences between exchanges. It refers to a method of making a profit by selling Bitcoin purchased on Binance, an American virtual asset exchange, on Upbit, a domestic exchange with a ‘kimchi premium’. Block Crfollowings emphasized that this trading method is ‘risk-free arbitrage’.
One of Haru Invest’s investment promotional materials that caused fraud damage of 1.4 trillion won. /internet capture
Block Crfollowings formed an internal asset management team of experts with excellent algorithmic trading skills and advertised that it would return a portion of the profits by directly trading virtual assets entrusted to customers with international asset management partners.
But algorithmic trading didn’t bring in the money he needed. In September 2020, Haru Invest’s internal asset management team’s expertise was so low that it might not manage more than half of the virtual assets entrusted by customers. This was completely different from what he said in an interview with a media outlet in June 2021, saying, “We can operate regarding 100 billion won with the internal management team alone.”
The internal asset management team suffered a loss of 285 Ethereum while using a risk-free arbitrage strategy in May 2021. A simple calculation based on the market price at the time would amount to $695,115, or regarding 900 million Korean won. Block Crfollowings stopped trading altogether by November of the same year and formed a new asset management team in June of the following year, but returns failed to recover.
Chosun DB
External management companies, such as international asset management partners, were domestic companies that did not meet the ‘strict standards’ presented by Block Crfollowings. One of these companies, like Block Crfollowings, was suffering from capital erosion. Prosecutors believe that Block Crfollowings only took the form of signing virtual currency investment contracts with external managers. Block Crfollowings started by entrusting the management of 90 Bitcoins to an external manager and steadily increased the entrusted management ratio. As the performance of the internal asset management team deteriorated, the company turned to external managers.
Even though stealing customers’ virtual assets and relying on algorithmic trading had little effect, Block Crfollowings attracted investors by posting 496 times on Naver Cafe, making it look as if it was making the promised profits.
According to the indictment, a marketing company contracted with Block Crfollowings uploaded a doctored photo to an internet cafe as if it had achieved an 11.3% rate of return in three months of Bitcoin deposits (staking). Afterwards, a marketing company asked the post using another ID, ‘Where did you do the staking?’, and the publisher ID responded, ‘Haru Invest 3 Galalock Up.’
Lawyers Hong Pureun and Jin Hyun-soo of Decent Law Firm, who represent the victims of this case, said, “It was revealed during the investigation that the business operated by Haru Invest was becoming increasingly unprofitable, leading to a ‘Ponzi structure.’” He added, “The truth will be revealed in court.” “I have to lose,” he said.
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