[THE INVESTOR] Shares of Kakao suffered losses on May 14, on news that its cryptocurrency exchange Upbit was raided over fraud allegations last week. 

Shares closed at 113,000 won (US$105.99), down 3.42 percent from the previous trading day. The mobile messenger giant is estimated to own over 20 percent stake in Dunamu, which operates Korea’s largest digital coin exchange Upbit.

Despite the stake ownership, Kakao has denied any direct ties with Upbit. But some key management members from Kakao, including former CEO Lee Sir-goo, have joined the firm in recent months and Kakao shares have been on a rollercoaster ride on the exchange’s business outlook. 

On May 11, the prosecution said it raided the offices of Dunamu in southern Seoul, accusing it of selling cryptocurrencies it doesn’t hold. 

The prosecution said it seized related hard disks and accounting books, The authorities are expected to question Dunamu chief Lee Sir-goo, who formerly headed Kakao. 

The raid arrives following the Korean government’s expanding investigation into cryptocurrency exchanges to curb speculation and illegal activities. 

Earlier in March, local cryptocurrency exchange Coinnest cofounder and CEO Kim Ik-hwan was charged with embezzlement and fraud. He had allegedly transferred “billions of won” in customers’ digital coins into personal accounts.

By Ahn Sung-mi (sahn@heraldcorp.com)