Delio CEO Admits Investor Deposits Not ‘Principal Protected’ Amid $181M Collapse
Jeong Sang-ho, CEO of Delio, faced intense scrutiny in the second criminal trial held at the Seoul Southern District Court on June 25, where he said investors’ deposits were not “principal protected.”
The trial revolved around the $180 million embezzlement accusation of the South Korean crypto firm. The accusations revolved around Delio guaranteeing the principal of investors’ deposits. CEO Jeong Sang-ho refuted the claim and maintained that Delio never promised principal protection and followed regulatory guidelines set by the Financial Intelligence Unit (FIU).
Delio Principal Guarantee Controversy Challenged by Investors
Delio initially attracted investments by promising returns of approximately 10% per year on deposits of cryptocurrencies like Bitcoin and Ethereum. In June 2023, the company abruptly halted services without notice, leading to accusations of fraud and embezzlement against Jeong, who allegedly misappropriated around $180 million (250 billion won) worth of virtual assets from approximately 2,800 investors.
During the trial, as reported by local news, creditors (investors) challenged Jeong over their deposits ‘principal guarantee.’
When questioned by the prosecution, Jeong stated, “We have never promised to guarantee the principal.”
He elaborated that Delio registered as a virtual asset business operator in 2021, adhered to FIU guidelines, and reported its status quarterly.
“Delio received a grant as a virtual asset business operator in 2021,” Jeong said. “Since then, it has reported the status four times a year and has been managed and supervised by the FIU, so the product was launched and serviced in accordance with the authorities’ guide.”
Creditors quickly responded, questioning, “Why are deposits and staking considered investments?”
The prosecution also argued that guaranteeing the principal is a duty of care to customers.
Jeong’s lawyer further clarified that the principal guarantee applied only to incidents like hacking, not to general investment conditions. They stated that the prosecution and creditors’ claims were “factually incorrect,” arguing that the platform’s lent assets were without collateral and their operational handling constituted “only 5% of their assets” following the collapse of FTX.
This statement provoked further anger from creditors, who accused Jeong of lying and demanded clarification on why their deposits were treated as investments.
Defunct South Korean Crypto Firm’s Legal and Procedural Disputes
The trial saw heated exchanges lasting over 20 minutes after the session. Creditors presented evidence suggesting Delio’s customer service assured them of principal guarantees. Jeong countered, attributing the principal guarantee claims to prosecution assertions, leading to further disputes over the nature of deposits versus investments. Jeong also refuted several other indictment points.
Regarding allegations of unsecured lending and a mere 5% self-management ratio of customer assets, the defense argued there was no evidence of unsecured lending. It attributed the low self-management ratio to the post-FTX market conditions, which affected asset liquidity management.
⚖️South Korean crypto firm Delio plans to establish a new corporation to transfer 250 billion won debt as it faces embezzlement charges.#crypto #blockchainhttps://t.co/tKL3ZD7pfb
— Cryptonews.com (@cryptonews) June 20, 2024
Notably, Jeong also pointed out, addressing accusations of asset loss due to hacking, that major losses were linked to Ducato Coin before Delio’s deposit service was fully operational. His defense also challenged the prosecution’s claims of fraud and misrepresentation related to obtaining Delio’s virtual asset business license.
Jeong’s next trial is set for July 23. The court has requested the prosecution provide a detailed list of evidence and justifications for the Gabia search and seizure legality by the week before the trial date.
