First Crypto-currency Fraudster Busted in Chicago

A Chicago trader is the first indicted in the city for crypto-currency related fraud.

Joseph Kim, who formerly worked at Consolidated Trading, a proprietary trading firm in Chicago, now holds the dubious distinction of being the first person indicted in Chicago for crypto-currency fraud.

Here’s part of a press release from the US Attorney’s Office for the Northern District of Illinois, which brought the indictment.

“In the first criminal prosecution in Chicago involving the cryptocurrency trading industry, a Chicago trader was charged today with fraud for allegedly misappropriating $2 million in Bitcoin and Litecoin.

“JOSEPH KIM, 24, of Chicago, was charged in a federal criminal complaint with one count of wire fraud.  He is scheduled to make an initial court appearance on Feb. 16, 2018, at 10:30 a.m., before U.S. Magistrate Judge Daniel G. Martin in Courtroom 1743 of the Dirksen Federal Building in Chicago.”

Along with the indictment, the Federal Bureau of Investigation agent, Todd Rathbun, completed an affidavit which described the alleged crime.

According to Rathbun, Consolidated Trading is a prop trading firm first created in 2001; in September 2017, the firm set up a crypto-currency division which was called Franklin.

Kim had worked at Consolidated since July 2016, as an assistant trader in their bond group.

The company has strict rules requiring their traders to disclose any trading activities they do on their own and further rules against personal trading which would create conflicts of interest with the trading they do for the firm.

Despite that, the affidavit stated, Kim not only engaged in personal crypto-currency trading but he transferred over $2 million worth of crypto-currencies and traded those without permission for his personal account.

Kim’s Alleged Misappropriation of Litecoin

“After KIM had been informed about Consolidated’s prohibition on personal trading in cryptocurrency, according to Director A, on or about the weekend of Septemb er 23,2017,KlM_ initiated transfers of approximately 980 Litecoins (valued at approximately $48,000)r from Consolidated’s Bitfinex account to an account to which Consolidated had no control or access. According to Director A, during the week of September 25, 2017, Director A discovered these Litecoin transfers that had occurred over the weekend, and sent an instant message to KIM inquiring why these transfers were made. According to Director A, KIM stated he moved these funds to his personal digital wallet for safety reasons. The FBI has obtained these instant messages that were sent by KIM to Director A. According to the instant mossages, KIM stated his personal wallet was intended “as an intermediary holding space” for the 980 Litecoins to avoid alleged issues with the Bitfinex exchange. According to Director A, he understood KIM’s response to mean that KIM moved the Litecoins in order to ensure the security of the Litecoins given purported issues with Bitfinex.

The affidavit continued: “The FBI has also obtained records produced by Kraken, which is a cryptocunency exchange. According to these records, these 980 Litecoins were transferred to KIM’s personal Kraken account on or about September 24, 2017. Records obtained by the FBI do not show these 980 Litecoins being transferred back to the company prior to Consolidated discovering these transfers to KIM’s personal account on or about November 28, 2017. According to Directors A and B, Consolidated did not find that these Litecoins were transferred back to the company prior to on or about November 28, 2017, when Consolidated discovered the misappropriation. Thus, there is probable cause to believe that KIM misappropriated 980 Litecoins that were valued at $48,000, and that KIM made false statements to Consolidated’s management in order to conceal this misappropriation.”

Kim’s Alleged Misappropriation of Bitcoin

The affidavit continued to describe Kim’s misappropriation of Bitcoins owned by Consolidated: “According to Director A, on or about November l7,2Ol7,when he was preparing the daily reconciliations of Consolidated’s traders’ activity, Director A noticed approximately 55 Bitcoins (valued at approximately $433,000) were transferred by KIM from Consolidated’s Bithumb account to an account that he did not recognize. According to Director A, he emailed KIM and asked about these 55 Bitcoins. The FBI has obtained a copy of this electronic mail. In the email, KIM represented that the transfer of the 55 Bitcoins had been “blocked,” and that KIM had taken steps to “unblock” them. According to Director A, he understood this to mean that the 55 Bitcoins would be returned to Consolidated’s Bithumb account in one or two days.”

The affidavit continued: “According to Owner A, following the weekend of November 25, 2011, KIM did not come into work on or about November 27 or 28, 2017, and instead represented that he was sick. On or about November 28, 2017, according to Consolidated’s management, Consolidated discovered that KIM had actually misappropriated a substantial amount of Bitcoin.”

The affidavit continued: “On or about November 29, 2017, KlM sent an email to Owner A, Owner B, Director A, Director B, Director C, and Trader A. The FBI has obtained a copy of this email. In this email, KIM provided details of the transfers he made of Consolidated’s Bitcoins to his personal accounts and digital wallets. Specifically, KIM stated he made the transfer of the approximately 55 Bitcoins from Consolidated to his personal account to cover his trading losses.

“KIM further stated that over the weekend of November 25, 2017, he had made back some of his losses, and that he was feeling ‘invincible,’ which led him to continue trading, but also experienced more losses. In this email, KIM provided transaction details for the additional transfers of Consolidated’s Bitcoins in order to cover those losses. During the course of these transfers of the company’s cryptocurrency, KIM stated his ‘Judgment [was] becoming increasingly erratic.’”

Kim showed remorse in an email he sent to his bosses days later: “It was not my intention to steal for myself from [Consolidated] and until the end I was perversely trying to fix what I had already done. I can’t believe I did not stop myself when I had the money to give back, and I will live with that for the rest of my life. You have every apology I have to give, I am sorry to betray you all like this.”

In total, Consolidated faces $508,000 in losses according to the affidavit.

An email to Consolidated Trading was left unreturned.