Kakao Affiliates Face Probe Over Crypto Misappropriation Allegations - Blockchain.News
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Kakao Affiliates Face Probe Over Crypto Misappropriation Allegations

Prosecution delves into allegations of cryptocurrency embezzlement & breach of trust against ex-Kakao chairman & affiliate executives, marking the start of a formal inquiry with the examination of the complainant on Oct 11.


  • Oct 13, 2023 08:30
Kakao Affiliates Face Probe Over Crypto Misappropriation Allegations

The prosecution has initiated a formal investigation into allegations of cryptocurrency embezzlement and breach of trust involving former Kakao chairman Kim Beom-su and executives of Kakao affiliates. The case has been assigned to the Seoul Southern District Prosecutors' Office Joint Cryptocurrency Crime Investigation Team (led by Lee Jung-real), which conducted its first examination of the complainant on October 11, 2023.

The examination of the complainant is the first step in the investigation of the complaint case, signaling the prosecution's commencement of a thorough investigation into the matter. On the day, the prosecution inquired in detail about the main allegations written in the complaint, the legal background, and the extent of the damage.

The prosecution has also requested additional data submission regarding the cryptocurrency Klay transactions of Kakao affiliate executives from the complainant. The complainant side mentioned that the request for supplementary data submission was made to compare and contrast the data secured by the prosecution with the content of the complaint.

Previously, on September 13, the economic democracy advocacy group, Economic Democracy 21, had filed a complaint against former chairman Kim Beom-su and executives of Kakao affiliates for embezzlement and breach of trust, among other charges. They claimed that Kakao, through its subsidiary, created the cryptocurrency 'Klay' and sold it to investors to collect funds, which were not used for related business but were embezzled instead. If fraudulent unfair transactions under the Capital Market Act are proven, investors who invested during this period can claim compensation for losses caused by criminal acts.

The group alleges that embezzlement occurred during the pre-sale process of Klay, with Kakao's subsidiary collecting KRW 150 to 300 billion, which was not used for related business but was misappropriated. The funds collected from the pre-sale should have gone to either Clayton (Singapore corporation) that issued Klay or GroundX (Japanese corporation) that spearheaded blockchain projects, but there is no trace of such funds in the financial statements, as per the complaint.

Furthermore, the group contends that executives of Clayton affiliates, i.e., insiders, are accused of embezzling Klay under various pretexts. Through media promotion of 'overseas investment projects,' they created a pretext for siphoning off Klay, which was then received back by the affiliate.

Klay is a virtual asset issued by Kakao's subsidiary, Clayton (later rebranded as Crust), and at one point, its market capitalization surpassed KRW 10 trillion. Although once regarded as a testament to the prowess of domestic cryptocurrencies, its price has now plummeted due to insider trading and operational issues.

Meanwhile, both Kakao and Clayton stated, "Many details are yet to be confirmed, and the raised issues are unilateral claims with no basis in fact."

Recently, Kakao announced an alliance with nine partners to expand commercial services on its blockchain platform, "Clayton." In collaboration with WeMade Entertainment Co.'s subsidiary, WeMadeTree, Kakao aims to develop blockchain-based gaming content​.

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