Suspects Arrested After South Korean Police Mishandle $1.4 Million in Bitcoin: Report

Police officers from the Gangnam Police Station in Seoul, South Korea didn’t adhere to crypto custody guidelines, leading to the loss of more than $1.4 million in Bitcoin at today’s prices, per a new report from local media outlet Dong-A Ilbo. Now two suspects have been arrested in relation to the swiped Bitcoin.

After confiscating 22 Bitcoin from a company that was hacked in 2021, police were supposed to securely custody the crypto in an offline or cold wallet that they controlled. Instead, they allowed the funds to sit in a wallet managed by a third-party and didn’t even have the seed phrase to access the funds, the report said.

“When seizing virtual assets, it is appropriate to transfer them to the investigative agency’s hard wallet and store them in a separately installed safe,” the seized asset guidelines from the National Police Agency recommended, according to the report.

Without control of the wallet, the police lost the funds in 2022 when the firm with the seed phrase borrowed Bitcoin from an individual identified as “Jeong,” who was also given the wallet’s secret phrase.

The funds were only discovered to be missing this year after a review by the Gwangju District Prosecutors’ Office found a different case of 320 Bitcoin that were missing—around $21 million worth.

Now in connection to the 22 BTC missing from the Gangnam Police Station, two individuals have been arrested by the Gyeonggi Northern Provincial Police Agency, which is conducting an investigation. 

“We are currently investigating the specific circumstances, including how the Bitcoin was leaked out,” a police official said, according to Chosun Daily.

While the investigation is ongoing, it is known that a member of the original hacking investigation team was “indicted on bribery charges” last year, and the third-party firm in question “reportedly offered bribes in exchange for ensuring the investigation proceeded in their favor,” Dong-A Ilbo’s report says. 

The ordeal follows increased scrutiny on South Korean financial regulators after they failed to find an internal system flaw which led to $43 billion in erroneous Bitcoin distributions on crypto exchange Bithumb earlier this month.  

Instead of sending 2,000 South Korean won (around $1.40) to users as part of a promotion, the exchange accidentally sent as much as 2,000 BTC—about $135 million at today’s prices—to hundreds of users.