Japan orders crypto exchanges to halt operations after hack

Japan, 08 Mar 2018 [Fik/News Sources]: Japanese authorities on Thursday ordered two cryptocurrency exchanges to suspend operations as part of a clampdown following a massive hack that saw thieves steal hundreds of millions of dollars in virtual currency earlier this year.

The Financial Services Agency (FSA) said in a statement it had ordered FSHO and Bit Station, exchanges based in Yokohama and Nagoya, to temporarily halt their operations for a month from Thursday.

The agency alleged that FSHO "does not have a proper system to monitor trading and has not given training to its employees," while an employee of Bit Station "diverted digital currency deposited by clients for his personal use."

Immediate comments from the two exchanges were not available.

Hack of Coincheck

Authorities also ordered five other exchanges, including Coincheck, to improve their business practices.

Coincheck was already slapped with sanctions in January following the hack.

The hack of Coincheck — resulting in the disappearance of NEM cryptocurrency worth $530 million — was one of the largest of its kind, and prompted authorities to search the firm's office in February.

The company has pledged to reimburse about $400 million to all 260,000 customers who lost their holdings of NEM, at the time of the hack the 10th biggest cryptocurrency by market capitalisation.

But it is unclear how and when the money will be returned.

Following the fresh FSA order, Coincheck vowed to "thoroughly review its management" and take measures to protect its depositors and deal with money laundering and funds for terrorists.

Lawsuit against Coincheck

In February, seven plaintiffs — two companies and five individuals — filed a lawsuit against Coincheck.

They are seeking the reimbursement of $184,000 in virtual currencies and further compensation for interest lost due to the hack.

Thieves siphoned away $523 million units of the cryptocurrency NEM from Coincheck during the January 26 hack, exceeding the $480 million in bitcoin stolen in 2014 from another Japanese exchange, MtGox.

That hack prompted Japan to issue new regulations, requiring exchanges to obtain a licence from the FSA, but Coincheck was allowed to continue operating while the agency was reviewing its application.