Court Says Exchange’s Post-Shutdown Custody of Customer Coins Still Constitutes Virtual Asset Business Under South Korea Law

A South Korean court has ruled that a cryptocurrency exchange that continues to hold and manage digital assets it has not returned to customers after shutting down still constitutes a virtual asset business under the Act on Reporting and Using Specified Financial Transaction Information.

Digital Asset reported on October 6 that the Seoul Administrative Court’s Second Division on October 1 dismissed a lawsuit filed by CP Labs against the Financial Services Commission seeking to overturn a corrective order.

CP Labs operated the CPDAX cryptocurrency exchange. After ending trading and deposit and withdrawal services, it continued only with the work of returning digital assets to existing users. The company argued that it was no longer a virtual asset operator because it had ended its exchange business.

The court disagreed. It found that holding and managing customer assets remaining after the shutdown amounted to winding up the existing business and handling residual affairs, and could therefore be regarded as an act conducted as a business. The court said such activity could fall within the scope of a virtual asset business even without a separate profit motive or actual profit.

The user digital assets that CP Labs was still holding without returning were worth about $10.8 million, based on its audit report. The Financial Services Commission had ordered the company to transfer those assets to the Digital Asset Protection Foundation to protect users.

CP Labs argued that the commission lacked a legal basis to order the transfer, but the court rejected that claim. It said the FSC could order measures needed for the custody and management of user assets and for business closure under the Virtual Asset User Protection Act.

The court also considered CP Labs’ failure to actively comply with the FSC’s requests for data submissions and cooperation with inspections. It said transferring the assets to a foundation supervised by the FSC would better protect users and help maintain market trust than leaving them with the company.

The court therefore dismissed CP Labs’ claim, saying the FSC’s corrective order could not be seen as a deviation from or abuse of discretion.