South Korean prosecutors will launch a “full-scale investigation” into the former CEO of the tech powerhouse Kakao over crypto “embezzlement” claims.

Chosun Ilbo reported that the case will be handled by the Seoul Southern District Prosecutors’ Office’s Virtual Asset Crime Joint Investigation Unit.

Prosecutors will probe the tech giant’s founder and former CEO Kim Beom-su and fellow Kakao executives.

Kim and others have been accused of embezzlement and breach of trust.

The executives have also been accused of conducting fraudulent transactions, in violation of the terms of the Capital Markets Act.

A civic group named Economic Democracy 21 (literal translation) last month filed a legal case against Kim.

It also accused “key officials” involved with the Kakao-operated Crust (aka Klaytn) ecosystem and Ground X, Kakao’s blockchain subsidiary, of wrongdoing.

Kim Kyeong-yul, the head of Economic Democracy 21, has been summoned by prosecutors, who want to hear more about the allegations.

Kakao is one of South Korea’s biggest tech firms.

It operates KakaoTalk, the most popular chat app in the nation.

Some 90% of South Korean smartphone owners use the app.

Kakao also operates a crypto exchange-partnering neobanking operation named KakaoBank.

And the firm launched the KLAY token through its overseas subsidiaries, in addition to a popular crypto wallet that debuted in 2020.

The firm was one of the first backers of the market-leading “unicorn” exchange Upbit, and many Upbit executives are former Kakao employees.

But Economic Democracy 21 claims that “a small group of Kakao insiders” made “illegal profits” via illicit KLAY transactions.

This, they claim, was mainly done by selling coins to investors, and then “embezzling the money instead of using it for its intended purpose.”

South Korean Tech Giant Kakao Facing Crypto Investigation

The group has alleged that Kakao officials embezzled coins during a private pre-sale event before KLAY was listed on major crypto exchanges.

The group has claimed Kim and others may have misappropriated up to $223 million.

And the group has claimed some officials engaged in insider trading, with Klaytn managers accused of siphoning off cryptoassets.

The group claims this took place at a time when Klaytn was looking to become the biggest blockchain player in East Asia.

Klaytn partners include some of South Korea’s biggest business groups, such as LG.

Kakao affiliate spokespeople have asked for time to conduct internal investigations into the allegations, but have suggested the claims are inaccurate.

A Kakao/Klaytn/Crust official was quoted as stating:

“We cannot comment much on this case. But the [allegations] are one-sided and groundless.”