Kucoin sees massive withdrawals after indictment by the US Justice Department

Crypto exchange Kucoin has been experiencing massive withdrawals since the US Department of Justice on Tuesday slapped it with charges of facilitating criminal activities. While the exchange has assured users that there's no cause for alarm, reports are surfacing online that suggest the founders planned to sell the company in 2023.

Kucoin charged by the DOJ

Kucoin, touted as the fourth largest crypto derivatives and fifth largest spot exchange, was charged on Tuesday alongside its founders, Chun Gan and Ke Tang, for "conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act," as announced by the US Attorney’s Office.

According to the announcement, Kucoin failed to maintain robust Anti-money laundering (AML) procedures that should have prevented its platform from servicing money launderers and terrorist financiers. As a result, Kucoin didn't adequately verify customers' identity or report suspicious activity, said the Attorney's Office.

Failure to implement basic AML/KYC “allowed KuCoin to operate in the shadows of the financial markets and be used as a haven for illicit money laundering, with KuCoin receiving over $5 billion and sending over $4 billion of suspicious and criminal funds," said US Attorney Damian Williams.

This also follows an enforcement action filed on Tuesday by the Commodity and Futures Trading Commission (CFTC) with the US District Court against sub-companies of crypto exchange Kucoin.

The complaint stated that Kucoin “illegally dealt in off-exchange commodity futures transactions and leveraged, margined, or financed retail commodity transactions; solicited and accepted orders for commodity futures, swaps, and leveraged, margined, or financed retail commodity transactions without registering with the CFTC as a futures commission merchant (FCM).”

Read more: Binance and Huobi among exchanges warned in India for AML and CFT framework oversight

Investors pull out huge holdings from Kucoin 

The charges have sent shock waves through the crypto community as the 30 million customer exchange has seen withdrawals worth about $500 million on the Ethereum (ETH) network, according to data from Spot on Chain.

The top currencies seeing withdrawals include ~274M USDT, ~15.5K ETH (~$55M), ~50M ONDO (~$46M), ~12M FET (~$34M), and ~95.38M GHX (~$21.8M). Data from Oxscope estimates the total net outflow from the exchange at $1.19 billion in the past 24 hours, with about $4.02 billion of assets still under its custody.

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Some of the top withdrawals were made by funds, smart money, and market makers, according to data from Nansen.

Due to the increased withdrawals, transactions on the network faced unusual delays on several occasions, leading to speculations of possible shutdowns. However, Kucoin has tried to calm fears by posting on X that they are operating well and users' assets are safe.

They further stated, "We are aware of the related reports and are currently investigating the details through our lawyers. KuCoin respects the laws and regulations of various countries and strictly adheres to compliance standards."

With all of these playing out, "three independent sources confirmed...that KuCoin considered ceasing operations and selling the exchange in 2023," according to an X post by Chinese reporter Wu Blockchain.

Kucoin's indictment comes after the FTX failure of November 2022, which saw its former CEO, Sam Bankman Fried, sentenced on March 28 after being convicted on seven felony counts.

Also read: Solana price hits $200 ahead of SBF's sentencing

Changpeng Zhao (CZ) of Binance would also face sentencing on April 30 after pleading guilty to not maintaining effective AML procedures when managing the exchange.