22 Bitcoins Held by Police Embezzled by CEO of Company That Reported the Hack?

▲ Bitcoin hacking

It has been revealed that 22 bitcoins kept by police as evidence were illicitly transferred out by officials from the reporting company involved in the case, exposing flaws in the management system for virtual asset evidence.

According to the Cyber Investigation Unit of the Northern Gyeonggi Provincial Police Agency on the 27th, two men in their 40s, identified as A and B, were confirmed to be the CEO and the actual operator of Company C, a coin firm that had previously reported a hacking incident. They are accused of conspiring in May 2022 to unlawfully recover and transfer 22 bitcoins that were being stored by the Seoul Gangnam Police Station.

Previously, in 2020, Company C requested an investigation, claiming that tens of billions of won worth of coins it had issued and held were hacked. During the investigation, authorities detected circumstances in which a large volume was sold from one account, converted into bitcoin, and moved to an overseas exchange. The account was subsequently frozen. The remaining 22 bitcoins were voluntarily submitted to the police in November 2021, stored on a USB-type cold wallet.

The issue was that company officials were also aware of the “mnemonic code” for the cold wallet. Possession of the mnemonic code allows assets to be restored externally without the physical device. Police investigations found that A and B exploited this to recover the bitcoins and liquidated them for approximately 1 billion won based on market prices at the time, using the funds for company operating expenses.

Police have applied charges of violating the Information and Communications Network Act and computer fraud under the Act on the Aggravated Punishment of Specific Economic Crimes against the two men and have requested arrest warrants. No additional accomplices have been identified. A former Gangnam Police Station investigator who was separately arrested in connection with another matter was found to have no direct involvement in this case. The former investigator had previously been indicted for accepting bribes during past investigations and was sentenced in August last year to one year and six months in prison.

This incident was uncovered during an inspection of virtual asset storage at frontline police stations following a separate case in January in which 320 bitcoins (worth 31.2 billion won) seized and stored by the Gwangju District Prosecutors’ Office went missing. Calls for a comprehensive overhaul of digital asset management systems within investigative authorities are expected to grow.

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