South Korea's financial regulator on Tuesday launched a formal investigation into cryptocurrency exchange Bithumb to find out how it paid customers more than 60 trillion won ($41.2 billion) worth of bitcoins that it apparently did not actually own, industry sources said.
According to relevant sources, the regulator informed the cryptocurrency exchange on Monday that it would launch an investigation. And just three days ago, they just conducted an on-site inspection.
"We take this case very seriously," said an official from the Financial Supervisory Service (FSS) of South Korea. "FSS will take severe legal measures against behavior that disrupts market order."
On Friday, Bitstamp mistakenly sent 620,000 bitcoins to 249 customers in a promotion instead of the originally planned 620,000 won, an incident that caused the price of bitcoin on its platform to drop.
The crypto exchange said in a statement that most of the mistakenly transferred Bitcoins were recovered soon after the incident, but 1,788 coins have been sold.
Centralized exchanges like Bithumb employ a "book-trading system," in which the exchange records ownership and executes trades electronically in its internal database, rather than recording each transaction on a public blockchain.
Such a system, if not managed properly, can create "false balances" that result in discrepancies between listed balances and actual reserve amounts.
As of the end of September last year, Bitstamp held approximately 42,000 Bitcoins, of which all but 175 were customer-managed cryptocurrencies.
Tuesday’s investigation comes as South Korea’s National Assembly deliberates on legislation related to virtual assets.
Lee Chan-jin, chairman of the South Korean Financial Supervisory Service, said at a press conference on Monday that it is crucial to resolve issues related to "virtual currency ghost coins" and that he will consider the results of the Bithumb investigation when revising the pending virtual asset bill.