Lee Hyung-Soo, CEO of crypto investment firm Haru Invest, has charged criminal fraud with alleged mismanagement of investor funds of $650 million.
The decision issued by the Seoul Southern District Court on Tuesday was nearly a year after Haru suddenly freezes client withdrawals and closes operations in mid-2023.
The ruling is a rigorous scrutiny of prosecutors, investors and the wider public as the case becomes one of the country’s most prominent cryptocurrency legal battles.
Several executives of Lee and Haru Invest and their parent company Blockcrafters have been accused of misrepresenting investment risks while providing high returns on returns, up to 25% per year before the company suspended operations.
Prosecutors initially estimated the loss of more than $1 billion, affecting 16,000 users, but later modified the figure to about $650 million, closely related to about 6,000 investors. The prosecution has sentenced Lee to 23 years in prison, believing that the investment model constitutes intentional fraud.
The court ruled that criminal intent was lacking due to wider market influence
The court ruled that despite management failure, Lee’s actions did not meet the criminal deception standards set by South Korean law. The judgment cites external factors such as the collapse of the FTX exchange and subsequent cryptocurrency market turmoil, which has led to Haru being unable to meet investor obligations.
According to the report, the court supported Lee’s claim that Haru’s business model involved legal investment strategies and generated real profits, thus distinguishing the case from a deliberate Ponzi scheme.
The co-CEO of Blockcrafters, who was identified by last name parks and songs due to South Korea’s privacy norms, was also acquitted on fraud charges. Blockcrafts chief operating officer Kang was cleared of fraud but was convicted of corruption and sentenced to two years in prison.
The court stressed that the ruling opened the way for civil litigation, which was only related to criminal liability and would not exempt the defendant from financial liability from affected investors.
In a separate but related incident, Lee was attacked on Haru’s failed investment platform by a man who claimed to have lost 100 BTC (worth millions of dollars) in an August 2023 court lawsuit.
The attacker was sentenced to five years in prison in April 2024. Lee survived the fatal injury of non-fatal injuries and continued to insist that he was working to compensate the victims by restoring his work in bankruptcy.
Wide impact on South Korea’s crypto regulations
The outcome of the Haru Invest case could impact future legal interpretations of crypto fraud in South Korea, especially in the case of external market shocks rather than intentional fraud, driven by business failure.
South Korea has been actively updating its regulatory stance on digital assets, and the high-profile ruling could prompt further legal clarification on custody liability and investor protection in the cryptocurrency industry.
Lee’s acquittal, while easing his criminal charges, remains a concern for thousands of investors who are still waiting for compensation. Bankruptcy proceedings and potential civil litigation may continue to shape the consequences of one of South Korea’s most important cryptocurrencies to date.
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