South Korean prosecutors raided three cryptocurrency exchanges this week over suspicions that staff embezzled funds from customers' accounts, according to local news reports.

Exchange staff, including executives, are suspected of siphoning off money from customer accounts and using it to purchase cryptocurrencies at other exchanges, Chosun.com reported.

The Seoul Southern District Prosecutors' Office reportedly confiscated hard drives, mobile phones, and documents in the search for evidence. One prosecutor was quoted as saying:

Another report indicates that the exchanges have been taken over by the country's financial watchdog, the Financial Services Commission (FSA), and that the operators of the companies are being charged with embezzlement.

The news comes amid increasing scrutiny of cryptocurrency businesses in South Korea, as the country moved to clamp down on what it considered rampant speculation and criminal activities such as money laundering.

In January, the Financial Supervisory Service reportedly indicated it was investigating possible insider trading of cryptocurrencies by its own staff and that it would make public any findings on the allegations.

Later that month, the Korea Customs Service said that a total of 637.5 billion won (around $600 million) in foreign currencies had been exchanged illegally, including unrecorded capital outflows using cryptocurrencies.

Furthermore, initial coin offerings (ICOs) were outright banned last September, although recent reports suggest regulators may be considering softening that stance.

The government has also restricted cryptocurrency trading, outlawing anonymous virtual accounts at the end of January. After that date, only accounts associated with identified users could be accepted via approved banks.

South Korean police

image via Shutterstock