Crypto Lending Firm Delio Faces Regulatory Sanctions for Compliance Failures in South Korea

Delio, a South Korean crypto asset management firm holding dual licenses as a Virtual Asset Service Provider (VASP) in Korea and a Money Services Business (MSB) in the U.S., has been hit with a three-month business suspension and a fine of KRW 1.896 billion (approximately $1.6 million USD) by the Financial Services Commission’s Financial Intelligence Unit (FIU). The regulatory body announced the punitive measures on September 1, citing multiple violations of financial transaction laws.

Regulatory Scrutiny

The FIU stated that Delio failed to comply with various obligations under the Act on Reporting and Using Specified Financial Transaction Information. Specifically, the firm neglected to report transactions with unregistered virtual asset service providers (VASPs), failed to assess money laundering risks before launching new products and services, and did not fulfill customer verification requirements. According to the FIU, “Delio supported the transfer of customer assets to unreported foreign virtual asset service providers 171 times and also supported the storage activities of these unreported VASPs.”

Operational Impact

Despite its regulatory credentials, Delio recently halted customer withdrawals, raising questions about its operational integrity. The company had been offering virtual asset deposit services with annual interest rates of up to 10.7%. However, the firm abruptly halted customer withdrawals in June, prompting an investigation by the FIU and subsequent legal action.

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Seoul Prosecutors Probe Crypto Fraud at Delio, Haru, Pica, and WeMade

The Seoul Southern District Prosecutor’s Office has launched an investigation into three cases of alleged cryptocurrency fraud, according to a report by Hankyung on July 27, 2023. The newly formed joint investigation team for cryptocurrency crimes, which was established on July 26, 2023, is spearheading the investigation.

The cases under investigation involve Delio and Haru Invest, Pica Project, and WeMade, all of which are suspected of fraudulent activities related to their management. The joint investigation team has taken over these cases from the Financial Investigation 1 Department of the Southern District Prosecutor’s Office.

WeMade, the issuer of the virtual asset WEMIX, has been under scrutiny since 2021 due to various controversies. The company had previously faced criticism for liquidating KRW 225.5 billion worth of WEMIX without notifying users between November 2020 and January 2022. This led to a significant controversy and highlighted the importance of regulatory disclosure in the virtual asset market.

Haru Invest, a Singapore-based crypto investment manager, faced a crisis when CEO Hugo Lee had to apologize to its members for concerns arising from a recent incident. The company had to halt interest payments to all users and cooperate fully with authorities in response to legal actions initiated against it. The company had previously suspended withdrawals and deposits on the platform due to increased market volatility.

Delio, one of South Korea’s largest cryptocurrency lending companies, also faced a crisis when it had to halt interest payments to users. The company’s operations were in doubt after prosecutors raided the company following a fraud lawsuit filed by Delio clients. The company had previously suspended withdrawals and deposits on the platform, and it was reported that Delio withdrew KRW 9.24 billion (US$7.2 million) worth of its crypto holdings to three anonymous external wallets not disclosed by the company or the executives.

The investigation team, which includes most of the prosecutors from the Financial Investigation 1 Department, including Deputy Chief Prosecutor Gino Sung, who previously led the investigation into cryptocurrency malpractices, is expected to expedite the processing of these cases.

In addition, the case involving independent lawmaker Kim Nam-guk’s alleged large-scale coin holdings continues to be investigated by the Criminal 6 Department. However, as some of Kim’s allegations are linked to WeMade’s suspected illegal market-making, a joint investigation with the joint investigation team seems inevitable.

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Crypto Lending Platform Sandbank Temporarily Suspends New Deposits and Investment Features in Response to Crypto Market Challenges

Sandbank, a leading crypto lending and investment platform, has announced its temporary suspension of new deposits and investment features in response to the challenges and uncertainties prevailing in the crypto market. The platform aims to ensure a secure environment for users to engage in their investment activities.

In recent times, numerous crypto companies have encountered serious challenges due to tightening regulations and inherent flaws in their business models. Just a few days ago, Delio and Haru Invest, two Korea-related crypto lender platforms, halted their withdrawal services. It is worth noting that Delio is a regulated entity holding both Korea’s Virtual Asset Service Provider (VASP) and the USA’s Money Services Business (MSB) licenses.

Despite the tumultuous climate, Sandbank claims to reassure its users by affirming the uninterrupted availability of its withdrawal and asset management functions. The platform remains committed to supporting its users in maintaining a healthy and prosperous crypto investment journey. Sandbank pledges to uphold the highest standards of service and will continue to assist customers throughout their investment endeavors.


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