[Economic View] To establish ‘good triumphing over the evil’ in the token market

[Source] https://n.news.naver.com/article/018/0005629279?ntype=RANKING&type=journalists

Sangjin Cha, lawyer at Alchemic Investment

In the early 18th century, under Louis XV, France was suffering from enormous debt. When the country was on the verge of bankruptcy, John Law, who argued that 'let's solve the problem by using paper money instead of the metal money that had been used until now', received an opportunity from Louis Philippe II, Duke of Orléans, regent of Louis XV.

The paper money issued by John Law was a great success, and John Law became France's Commissioner of Finance. It would have been better if it had ended here, but John Law acquired the Mississippi Corporation and was granted a commercial monopoly and the right to govern the internal affairs of the Mississippi River basin, including Louisiana, North America, which was a French colony, and in 1718, the Bank General became the central bank of France. However, Mississippi Corporation encouraged speculation by promising investors a 40% return regardless of the substance of the business. In the end, in June 1720, the stock price of Mississippi, which had once been trading at 10,025 livres, plummeted to 500 livres, many people went bankrupt, and John Law was eventually dismissed as treasurer.

If you look at it up to this point, it may seem like a typical story of good and evil, but John Law left France in December 1720 and went to Venice, which was still a wealthy and sophisticated city at the time, and spent his golden years gambling until he died.

Similarly, in the domestic digital asset market and unlisted market, there have been cases where bubbles have been created by raising the price of tokens or unlisted stocks, causing damage to numerous people, but there have been many cases where punishment has not been carried out, so there were many opinions that the system needs to be overhauled. Accordingly, the Virtual Assets Act has recently passed the plenary session of the National Assembly, and the system for issuance and distribution of token securities is busy, but looking at the contents, it is necessary to check whether sufficient responses can be made to existing multi-victim crimes.

There are certain types of multi-victim crimes that occur in the domestic unlisted digital asset market or unlisted stock market. Someone issues digital assets, securities, points, etc., saying they are starting a new, innovative business that has never existed before, but things don't go as planned. Such businessmen are approached by distributors of multi-level organizations who introduce themselves as financial experts or consultants. The distributor of a multi-level organization appoints a person in charge above him/her, such as a finance director, and then brings in distributors from other multi-level organizations. Once the work is completed up to this point, they become a sales pitch, sell down unlisted digital assets or unlisted stocks to many people by spreading false rumors that the price will inevitably rise, and then invest appropriately themselves. The sales pitches in this process focus more on signing memorandums of understanding (MOUs) with other organizations, signing agreements, etc., and publishing articles, rather than on actual business operations. Eventually, when the bubble bursts, sales agents gather victims, form an emergency response committee, sue businessmen and those around them, and file civil lawsuits. 

It would be nice if it ended here, but if the CEO and key officials are criminally punished, the sales people, like John Law, try their luck again by finding a new place to find the CEO and higher-ranking officials.

Previously, there were relatively many activities like the above in the unlisted digital asset market, but once the token securities system is implemented, cash flows from various businesses are securitized and distributed electronically, so similar activities are expected to become more active in the unlisted securities market.

Efforts from all market participants are needed to prevent such actions. Although it will be difficult for the government to define and punish all such acts through legal regulations, it must establish regulations to effectively punish sales tactics. Additionally, market participating companies must strive to maintain market reliability through strict lending controls and self-regulation. And investors should not trade based on their referrals, even if they are formally qualified. We must understand that in an already advanced economic environment, there is no profit without compensation.

Sohyun Kwon (juddie@edaily.co.kr)

Copyright © 2023 Alchemic Investments Co., Ltd. All rights reserved.