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The lawsuit against Li Zhengxun, the main shareholder of Bithumb, was mainly due to the proposal of Bithumb to launch Bithumb after BTHMB Holdings, a subsidiary of the BK Group, issued BXA tokens, but failed. In addition, the acquisition did not proceed smoothly, which led to a plummet of BXA tokens and was the largest shareholder of BTHMB Holdings . Chain Wen sorted out the causes and consequences of the lawsuit.
Written by: Zhang Gaijuan
Since entering September, the top exchanges fully embrace DeFi and become the latest hotspot in the market, but South Korea’s largest exchange Bithumb has stood on the cusp of public opinion with another attitude. The exchange has two consecutive times in just one week. The main shareholder was also summoned by the police for investigation. What happened to Bithumb?
According to Seoul Shinmun get the news , September 2, Seoul police on suspicion of fraud and other acts against South Korea’s largest exchange Bithumb Corporation conducted a search. The police revealed that Bithumb’s major shareholder Lee Jung Hoon (currently also the chairman of Bithumb’s shareholder Bithumb Holdings and the chairman of Bithumb Korea) was suspected of fraud and cross-border transfer of assets and other illegal activities. The search is related to Bithumb Lee Jung Hoon (also chairman of Bithumb Holdings and Bithumb Korea) and BK Group Chairman Kim Byung Gun in the process of negotiating the sale of Bithumb shares to issue cryptocurrency BXA in October 2018.
BXA investors accused Lee Jung Hoon, Kim Byung Gun and others of pre-sold tokens worth about 30 billion won in the name of BXA’s listing on Bithumb Exchange, but they did not actually go online, thus causing great losses to them. In addition to allegations of fraud, Li Zhengxun is also suspected of illegal cross-border transfer of assets and other illegal activities.
On the 7th, the Seoul police again conducted additional searches in two places including Bithumb Korea to obtain relevant information about the BXA token. According to relevant police sources , the substantive seizure and search activities have ended, and the police plan to use the information they possess to summon Li Zhengxun and other relevant persons for investigation. Soon thereafter, South Korean regulators seized Kim Byung Gun’s Bithumb shares.
The latest news from Yonhap News Agency stated that last week, the Seoul police conducted a subpoena investigation against Lee Jung Hoon, and the focus of the investigation was mainly fraud allegations. In addition, up to now, the police have not subpoenaed investigations into Kim Bingjian, the chairman of the BK Group who was accused with Lee Jung Hoon.
In fact, as early as December last year, Li Zhengxun and Jin Bingjian were accused of fraud and other acts. So what are the causes and consequences of this incident? Will it have a negative impact on Bithumb’s business and even the entire encryption field? Lianwen has compiled this and will try to answer this in light of Bithumb’s business performance in recent months.
Why was Bithumb being investigated by the police?
The lawsuit against Li Zhengxun was mainly due to Bithumb’s proposal to launch Bithumb after the BXA token issued by BK Group’s BTHMB Holdings, but it was unsuccessful. In addition, the acquisition did not proceed smoothly, which caused the BXA token to plummet, and it was the largest shareholder of BTHMB Holdings. Chain Wen sorted out the causes and consequences of the lawsuit.
In October 2018, Bithumb’s largest shareholder Bithumb Holdings (formerly BTC Holding Co., which previously held 76% of Bithumb’s shares) agreed to sell its 50% plus 1 share of Bithumb to BK Global Consortium, a subsidiary of Jin Bingjian, for a total amount of acquisition About 400 billion won (about 352 million US dollars).
At the end of 2018, after signing an agreement to acquire Bithumb shares, BK Group Chairman Kim Bingjian established BTHMB Holdings (BXA Consortium) in Singapore to issue BXA tokens.
After the tokens were issued, 12 exchanges including Bithumb formed an exchange alliance, and began to sell BXA tokens under the name of BXA as the main token of the exchange alliance. BTHMB Holdings conducted a private placement to overseas institutional investors through a Singapore token sales platform and raised 30 billion won. However, these funds mainly came from domestic investors in Korea.
BXA promotional video, source: Decenter
Since then, Bithumb plans to go public in the US through a reverse merger. In January last year, the US listed company Blockchain Industries and BTHMB HOLDINGS signed a binding letter of intent to merge. The merged entity will be called the Blockchain Exchange Alliance (BXA). However, neither party has disclosed relevant progress announcements since then.
But what was unexpected is that as of the end of September 2019, BK Global Consortium did not complete the payment of the remaining funds (approximately US$252 million) for the acquisition of Bithumb. In addition, there has been no media report since then that BK Global Consortium has paid the balance. However, it is worth noting that it is the controlling shareholder of Bithumb on the BXA official website.
Screenshot of BXA official website
Due to the collapse of the exchange alliance plan, the price of BXA tokens plummeted by 99% compared with the private placement price, almost to zero. As a result, BXA investors charged Kim Bingjian and Lee Jung Hoon for fraud and other conduct through criminal proceedings.
In December 2019, South Korean law firm OhKims Law & Company represented more than 60 BXA token investors in accusing Kim Byung Gun and Lee Jung Hoon (then Bithumb consultants) of fraud. Li Zhengxun is also the largest shareholder of BTHMB. Kim Byung Gun and Lee Jung Hoon were responsible for the issuance of BXA tokens, and the litigant demanded compensation of 7.8 billion won. BXA investors stated that although BXA is not a token issued by Bithumb, this is how BTHMB Holdings advertises to investors.
As for the specific matters of the allegations, South Korean blockchain media Decenter stated that some BXA investors stated that they mistakenly believed that the BXA token was issued by Bithumb. In January 2019, Bithumb announced that it has joined BXA and plans to launch the BXA token on its trading platform for the first time (the announcement has been deleted at present).
At present, Bithumb’s position is that “BXA is a token issued by BTHMB Holdings and has nothing to do with Bithumb.” Li Zhengxun also clarified that “it has never participated in the issuance of BXA. Although it was said during the acquisition process that it would propose Bithumb to list BXA. Tokens, but Bithumb Korea’s listing review committee failed to approve the proposal, so it’s gone.”
Except for Kim Bingjian, why do BXA token investors regard Lee Jung Hoon as the main person in charge?
Then why do BXA token investors regard Kim Bingjian and Lee Jung Hoon as the main persons in charge of this incident? As we all know, Jin Bingjian has been playing a leading role in the issuance of BXA tokens. But at the same time, Decenter said that Li Zhengxun also played a considerable role in the shareholding structure of affiliated companies.
According to the registration information of the Accounting and Corporate Regulatory Authority of Singapore (ACRA), the largest shareholder of BTHMB Holdings is SG Brain Technology, which owns 95.8% of BTHMB Holdings. The main shareholder of SG Brain Technology is SG BK Group, which is led by consultant Li Zhengxun and chairman Jin Bingjian, holding 49.997% and 49.991% of the shares respectively.
The equity structure of Jin Bingjian and Li Zhengxun in related companies, drawing: Lianwen
It can be seen that Li Zhengxun holds slightly more shares in SG Brain Technology than Jin Bingjian. Therefore, to a certain extent, investors believe that the true owner behind BTHMB Holdings is Li Zhengxun.
Bithumb’s complex shareholding structure
On the other hand, the shareholding structure of Bithumb Exchange is also very complicated. Currently, there is much controversy about who is Bithumb’s largest shareholder.
In April of this year, Lee Jung Hoon announced that he would formally join the boards of Bithumb Holdings and Bithumb Korea in response to the amendments to the Special Financial Law passed by South Korea and will perform his duties as a major shareholder. Regarding whether it is the actual owner of Bithumb, Li Zhengxun said, “Bithumb is a company independently operated by a professional management team. I have always participated in major decisions about Bithumb only as a major shareholder.”
Li Zhengxun further explained that due to the blockage of the acquisition transaction between Bithumb Holdings and BK Group, Bithumb’s shareholding structure looks more complicated and plans to simplify and reveal the company’s shareholding structure in the near future.
Bithumb’s business progress and revenue performance behind the lawsuit
After unsuccessful backdoor listing in the United States, Bithumb is still actively seeking a listing this year. In July, Bithumb Korea sought to conduct an IPO through Samsung Securities.
Regarding the company’s management system, a Bithumb insider previously stated that Bithumb’s internal management system is very complete, so even if the acquisition of BK Global Consortium fails, it will not have any impact on the company.
On the other hand, Bithumb’s market share is also continuing to make breakthroughs. According to a Korea Stock Exchange in August 2020, the site was visited EtherLab published report , Bithumb month in the past three months were visits to 4.683 million, ranked first, followed by Upbit (432.5 Wan), Coinbit (196.7 Million) and Coinone (1.243 million). Among them, since June, Bithumb visits have increased by about 100 per month, and visits from June to August were 3.451 million, 4.827 million and 5.774 million, respectively.
In terms of transaction volume performance, Bithumb has been firmly in the number one position in the Korean cryptocurrency market. Data provided by Coingecko shows that in the past 24 hours, Bithumb’s trading volume has reached nearly 310 million U.S. dollars, and in terms of trading volume, it ranks 25th among global exchanges. From the perspective of trading volume performance, the litigation incident has little impact on Bithumb, and trading volume has remained stable above the long-term average since the news broke.
Bithumb’s transaction volume data in the past 3 months, source: Coingecko
In addition, the report disclosed by Bithumb’s shareholder Vidente in May of this year shows that in the first quarter of this year, Bithumb Korea’s sales were 44.837 billion won, operating profit was 28.329 billion won, and net profit was 22.802 billion won. It has already achieved sales last year. 31% of revenue, 41% of operating profit and 61% of net profit.
From the data of Bithumb’s business progress and revenue performance, it can be seen that the litigation that began in December last year did not have a significant impact on Bithumb. Lianwen will continue to track the latest progress of Bithumb’s investigation.