South Korea based digital currency exchange Bithumb has reportedly initiated legal proceedings in an attempt to recover Bitcoin (BTC) that had been accidentally / unintentionally distributed to platform users during a surprising event this past February. As per recent media reports from local sources, crypto exchange Bithumb has asked the court to freeze certain accounts that were said to be involved in the unfortunate incident, collectively carrying 7 BTC (appr. $500,000 at the time of writing) through a formal seizure.
A seizure order effectively seizes an account’s outstanding assets in order to secure a claim prior to an official court ruling on the matter, usually before a civil suit. In this case, the vast majority of funds were actually returned by the users but the reason Bithumb may be taking legal action right now is to set a precedent or establish a certain expectation: that being that in the future, users do not decide to keep funds sent to them unintentionally.
Earlier this year in February, the South Korea based digital assets exchange accidentally sent out 620,000 Bitcoins, valued at more than $42 billion, across numerous customer accounts. This was reportedly done as part of the company’s promotional campaign.
The unfortunate error for Bithumb is said to have originated from an exchange worker manually inputting the incentive unit as Bitcoin and not the actual Korean fiat currency (as it should have been).
The issue had led to the BTC’-KRW cryptocurrency trading pair on the platform to fall by around 15-20%, resulting is significant losses for platform users.
The crypto exchange then said that they will be compensating any impacted customers at 110% of their total losses.
Bithumb also stated that it will now aim to significantly improve its internal controls and introduce a so-called protection fund for any future issues.
Although the majority of traders in the accidental distribution issue have returned the BTC at the cryptocurrency exchange platform’s request, certain investors are actually refusing to do it.
They are now stating / arguing that they don’t really have to return the funds since the error was due to the company’s own mistake.
Notably, Bithumb’s incident has impacted South Korea‘s wider crypto-assets sector, as local authorities have pointed out that the exchange’s weak or sub-par internal controls and risk management processes are not adequate.
What’s also concerning that the exchange would actually rely on manual processes whereby a critical error like entering a BTC amount and not a fiat amount can actually be done in practice. It seriously calls into question how such a large exchange can commit such an embarrassing error.
This incident has led to local regulators considering stricter measures to impose legal responsibilities on crypto exchanges. Bithumb‘s management also revealed that it has been negatively impacted by the issue. The firm said it postponed its IPO to 2028 at least.
