South Korean crypto yield platform Delio, which went bankrupt last year and owes creditors an estimated 250 billion won ($181 million), is under scrutiny after CEO Jung Sang-ho openly admitted that investors’ deposits were not “principal protected” when they transferred their assets to the platform.
In a report by local news agency Etoday Korea, Jung stated during the second hearing of the first criminal trial held on June 25 at the Seoul Southern District Court that: “I never promised a guarantee of principal. It was clearly stated in the terms and conditions, and FIU [Korea Financial Intelligence Unit] required us to notify investors of this through our website.”
However, creditors and the prosecution were quick to challenge this claim, arguing that the principal guarantee is a duty of care to customers and questioning why deposits and staking were considered investments.
Jung’s legal team refuted the allegations, insisting that the assets lent by the platform were without collateral and only constituted “5% of their assets” following the collapse of FTX.
Jung faces charges of fraud, embezzlement, and breach of trust over the collapse of the Delio platform, with the next hearing scheduled for July 23.
In 2022, Delio became the first Korean company in the crypto lending and depositing field to obtain Virtual Asset Service Provider (VASP) approval from the FIU. The company was praised for its high-level information security system and obtained its Information Security Management Systems (ISMS) certification the previous year.
However, the situation took a turn when Delio’s sister firm, Haru Invest, suspended withdrawals and deposits due to issues with a “consignment operator.” This led to Delio taking similar action the following day, possibly due to counterparty exposure. Haru Invest has reportedly laid off most of its staff and is currently taking legal action against its service partner.
Prosecutors accused Haru Invest’s executives of misappropriating most of its customers’ crypto deposits by reinvesting the assets from March 2020 to June 2023. The execs allegedly falsely advertised Haru as operating a stable business using “risk-free diversified investment techniques.”
Despite the fallout, Delio CEO Jung Sang-ho assured investors during a meeting on June 17, 2023, that the firm would resume withdrawals, although no fixed schedule was provided at the time. On June 27, 2023, the company began opening withdrawals for a portion of its staking services.
In a related development, Haru Invest executives were arrested in South Korea on embezzlement charges.