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Bithumb bitcoin mishap casts doubt on CEO Lee Jae-won's third term
Bithumb CEO Lee Jae-won drinks water during a meeting between the Financial Supervisory Service chief and cryptocurrency exchange CEOs in Mapo District, Seoul, Feb. 7, 2024. Newsis
By Jun Ji-hye
Bithumb CEO Lee Jae-won’s reappointment for a third term, once considered all but certain, has been thrown into doubt following the cryptocurrency exchange’s unprecedented bitcoin misallocation, industry officials said Tuesday.
Lee had been widely expected to secure a third consecutive term in March, but the massive mishap, valued at over 60 trillion won ($41 billion), has raised serious concerns about fundamental weaknesses in the exchange’s internal control frameworks and ledger management systems.
The incident happened Friday, when the country’s second-largest cryptocurrency exchange sought to credit customers participating in a promotional campaign with 2,000 won worth of bitcoin per person. Instead, an employee mistake resulted in each participant receiving 2,000 bitcoins, rather than 2,000 won, pushing the total misallocated amount to 620,000 bitcoins. At the time, bitcoin was trading near 98 million won, valuing the error at about 62 trillion won.
According to Bithumb’s third-quarter report last year, the exchange held only about 42,800 bitcoins, meaning the payout exceeded its actual holdings by around 14 times. The fact that virtual, book-entry assets were credited to users, and that some recipients were able to sell the misallocated bitcoins and withdraw cash, has fueled criticism from financial regulators and lawmakers who say the episode exposed structural flaws rather than a one-off human mistake.
Lee’s current term as CEO expires in late March. He joined Bithumb in 2017 as a senior adviser for management and overseas operations, and assumed the top post in 2022. He further solidified his leadership by securing reappointment in 2024.
Lee is known to be a close confidant of Bithumb founder Lee Jung-hoon, having worked alongside him since 2007, when the founder was running IMI, formerly known as Itemmania.
Lee Jung-hoon, who currently heads Bithumb A, a new business and investment-focused company spun off from Bithumb Korea, is widely regarded as the exchange’s ultimate owner.
Bithumb founder Lee Jung-hoon leaves the Seoul Central District Court in Seocho District, Seoul, after being acquitted over fraud charges, Jan. 3, 2023. Newsis
Although he had largely remained behind the scenes due to the exchange’s opaque ownership structure, questions over Bithumb’s true controlling shareholder were formally settled in May last year, when the Fair Trade Commission designated Bithumb as a large business group and identified Lee Jung-hoon as the controlling person.
Bithumb’s ownership structure is topped by DAA, a company effectively controlled by Lee Jung-hoon. Through Bithumb Holdings, which holds a 73.56 percent stake in Bithumb Korea, DAA controls the operator of the exchange.
Within Bithumb Holdings, stakes held by DAA, BTHMB Holdings, other shareholders and the management team are widely viewed as being under Lee Jung-hoon’s influence, together accounting for about 65.8 percent of the company’s shares.
“Until the bitcoin misallocation came to light, there was a broad consensus that CEO Lee Jae-won was headed for a third term, but the incident could undermine his position depending on how the fallout is handled,” a crypto industry source said.
Even so, sentiment is still tilted toward Lee’s reappointment, at least for now. He is credited internally with steadily expanding Bithumb’s market share into the 30 percent range and pushing ahead with the exchange’s coin lending service since last year.
“Internally, Lee’s leadership is seen as firmly established and unlikely to be easily shaken,” another industry source said. “Moreover, founder Lee Jung-hoon currently has no clear alternative partner capable of working with him seamlessly both inside and outside the company.”
Meanwhile, the National Assembly has agreed, through consultations between ruling and opposition party leaders, to summon Bithumb founder Lee Jung-hoon to an emergency hearing on the exchange scheduled for Wednesday. As such requests are not legally binding, it remains unclear whether he will comply.
Lawmakers have also requested the attendance of Bithumb CEO Lee Jae-won, along with officials from the Financial Services Commission, the Financial Supervisory Service (FSS) and the Korea Financial Intelligence Unit.
Separately, financial authorities have launched a formal investigation into Bithumb to examine how the exchange was able to distribute bitcoins beyond its apparent holdings. The decision was made Monday, three days after the FSS carried out an on-site inspection.
“We view the incident as a grave matter and will respond firmly to any actions found to have undermined market integrity,” an FSS official said.