South Korean prosecutors are investigating Bithumb, the country's second largest cryptocurrency exchange by trade volume, for indiscriminately listing domestic token projects for a fee.

Domestic tokens of limited circulation are locally referred to as "kimchi coins."

The term is commonly used for tokens issued by shady projects that engage in price manipulation and fraud.

This investigation comes after prosecutors' probe of Coinone, Korea's third largest exchange, for the same thing.

The financial crimes unit of the Seoul Southern District Prosecutors' Office recently conducted search and seizure operations of Bithumb Holdings' offices in Seoul's Gangnam District and of the private residence of Bithumb holdings CEO.

Authorities have reportedly seized several financial statements and accounting documents related to suspicious token listings.

Bithumb Holdings is the parent firm of Bithumb Korea, the company that operates Bithumb's crypto exchange.

Prosecutors suspect Lee and several Bithumb executives of accepting bribes ("listing fees") to list kimchi coins that were subject to minimal or no scrutiny, or of colluding in such a process.

"Bithumb has been aggressively listing shady kimchi coins for a while now. These listings have caused a lot of noise in the marketplace, so many thought that Bithumb was going to be investigated before Coinone," said a former executive of a crypto exchange familiar with Bithumb's internal affairs.

The local blockchain industry has long pointed to inappropriate listings by both Bithumb and Coinone.  

Bithumb listed the Arowana token (ARW) back in April 2021 after less than a day of internal evaluations.

ARW's price jumped 100,000% within 30 minutes of its listing, an indication of price manipulation. The incident sparked investigations from both prosecutors and the police.

Prosecutors have reportedly been tipped off by insiders known as "listing brokers."

They are also basing their investigation on information and documents obtained from the arrest of Kang Jong-hyun, de facto owner of VR and fintech firm Vidente, a major shareholder of Bithumb.

Investigators have identified several other kimchi coins that were listed for a bribe.     

Bithumb Holdings and Bithumb Korea are also under investigation by the National Tax Service (NTS).

The NTS' Seoul Regional Office began its investigations of Bithumb Holdings and Bithumb Korea in January 2023. The investigations are being conducted by a special department that looks into tax evasion and tax-related crimes.

On another note, FTX, the crypto exchange co-founded by Sam Bankman-Fried (SBF), was in talks to acquire Bithumb in 2022, but FTX backed out of this deal in November due the infamous liquidity crisis that led to its demise.