South Korean crypto yield platform Delio, led by CEO Jung Sang-ho, collapsed last year and owes creditors an estimated 250 billion won ($181 million). Jung has admitted to investors that their deposits were not “principal protected” when they transferred their assets to the platform.
During the second hearing of the first criminal trial held on June 25 at the Seoul Southern District Court, Jung stated, “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,” according to a report by local news agency Etoday Korea.
Creditors have challenged this statement, questioning why deposits and staking were considered investments. The prosecution has also alleged that the principal guarantee is a duty of care to customers.
Jung’s legal team, however, has argued that the assets lent by the platform were without collateral and their operational handling constituted “only 5% of their assets” following the collapse of FTX.
Jung is currently charged with fraud, embezzlement, and breach of trust over the collapse of the Delio platform, and the next hearing for the CEO is scheduled for July 23.
Delio became the first Korean company in the crypto lending and depositing field to obtain Virtual Asset Service Provider (VASP) approval from the FIU in 2022. “Delio obtained its Information Security Management Systems (ISMS) certification last year and has built and operated a high-level information security system at the caliber of financial institutions such as Hana Bank. With VASP approval, Delio plans to provide services based on reliability, security, and safety,” the firm wrote at the time.
On June 13, 2023, Delio’s sister firm, Haru Invest, suspended withdrawals and deposits, citing an issue with a “consignment operator.” The move prompted Delio to do the same the following day, likely due to counterparty exposure. Since the announcement, Haru Invest has reportedly cut most of its staff, and the company says it is currently taking legal action against its service partner.
Prosecutors alleged that Haru Invest collapsed due to its executives 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.”
During an investors’ meeting on June 17, 2023, Delio CEO Jung Sang-ho explained that the firm would resume withdrawals, albeit with no fixed schedule at the time. On June 27, 2023, the company began opening withdrawals for a portion of its staking services.
Related: Haru Invest execs arrested in South Korea on embezzlement charges.
Defunct yield protocols CEO acknowledges user deposits were not principal protected