A South Korean court has cleared President Lee Hyung-soo of Haru Invest of embezzlement and fraud charges worth $650 million.
Tuesday’s Seoul Southern District Court ruling followed a year of legal proceedings that drew widespread public and investor scrutiny.
The charges resulted from Haru Invest’s sudden decision in June 2023 to halt user withdrawals and cease operations. At the time, the platform oversaw crypto investments for thousands of users, offering high returns of as much as 25% a year, a business model prosecutors suggested was a scam.
Judge rules Lee did not mislead investors
In its decision, the court found that while Haru Invest’s management was negligent, it did not cross the legal threshold for criminal fraud. The court stressed that Lee and his group had not misled investors with false claims or invented their business activities.
The court also acknowledged that external market shocks, such as the collapse of the crypto exchange FTX and the failure of the sector’s so-called initial exchange offerings, were largely responsible for the suspension. The FTX bankruptcy led to a larger liquidity crunch in crypto that affected Haru Invest’s ability to accommodate investor requests.
The report said the court found that although Lee played a leading role at several turning points, there is no indication that the acts were guided by fraudulent intention and were rather in reaction to severe external financial conditions.
Prosecutors initially sought a 23-year jail term for Lee, claiming that the firm swindled as many as 16,000 investors out of about 1.39 trillion won ($1.02 billion). That number was later reduced when the case went forward.
The defense insisted Haru Invest was a “bonafide” digital asset management business generating real profits in above-board investments. They argued that Haru’s business model relied on deploying customer funds in the open market to earn genuine returns, unlike typical crypto scams built on fictitious assets or fabricated returns.
The court concurred with this viewpoint. It said that Haru’s investing operations substantially differed from Ponzi-style schemes, in which old investors are paid with money from new ones. It was a rare acknowledgment by the judiciary that just because many crypto projects go bust does not mean all are scams.
The court also clears other executives
Lee was not the only executive implicated in the case. The court also found Park and Song, the co-CEOs of Haru’s parent company, BlockCrafters, not guilty of fraud. Their family names were not included in public court documents, as required by privacy laws in South Korea.
The case also saw a violent incident. During a preliminary hearing in August 2023, Lee was stabbed four times in the neck by an individual who claimed to have lost 100 Bitcoin in Haru’s platform collapse. Lee survived the attack, and the assailant was taken into custody.
The judgment on Tuesday does not mean that Lee and the other executives are now free of civil lawsuits. The court noted that victims could still seek monetary redress through bankruptcy proceedings or civil litigation.
Lee has previously said he is committed to reimbursing investor money through bankruptcy and ongoing restructuring. However, others have also voiced frustration at a delay in the resolution and have heard little communication from the company.
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