Cryptocurrency exchange Coincheck pledges to pay back $400 million in stolen assets

Coincheck, one of Japan's largest cryptocurrency exchanges, said it will use company funds to repay all 260,000 customers whose NEM coins were stolen. The total compensation is about 46.3 billion yen (about 425 million U.S. dollars), equivalent to nearly 90% of the total value of the stolen NEM. All customers will receive 88,549 yen for each coin they hold, and the funds will be deposited in Coincheck's user wallets. The repayment date has not yet been determined.

The move comes after the company admitted that about $400 million worth of NEM tokens were “illegally” moved out of the exchange and went missing, making investors nervous in Japan where people remain wary of digital token exchanges four years after the collapse of Mt. Gox.

According to data from Coinmarketcap.com, NEM is the tenth largest cryptocurrency by market value. After the news of the theft was announced, virtual currencies generally fell, but now they have basically turned from falling to rising.

Coincheck co-founder Yusuke Otsuka held a press conference at the Tokyo Stock Exchange late Friday night, saying the company did not know how 500 million tokens disappeared, but that the company was working to ensure the safety of all customer assets. Coincheck earlier said it had suspended all withdrawals, stopped all token trading (except Bitcoin), and stopped deposits into NEM tokens.

“We are investigating,” the Financial Services Agency said in a statement. It could be one of the largest cases of loss or theft since the digital currency was introduced in 2009.

Japan’s Financial Services Agency has sent notices to about 30 companies operating virtual currency exchanges in the country, warning of the possibility of more cyber attacks and urging them to strengthen security precautions, according to people familiar with the matter. The agency is also considering administrative penalties against Coincheck.

"Employer beware," said Yvonne Zhang, who participated in a panel discussion on the prospects of cryptocurrencies at the Futures Market Association conference in Bangkok on Friday. "Investors who don't do due diligence and take the time to understand what they are trading and where they are trading are facing uncontrollable risks. If they know the black market nature of this market and continue to 'trade', they are gambling."

In Japan, one of the world’s largest cryptocurrency markets, policymakers have introduced a licensing system to increase oversight of local trading venues and avoid a repeat of the collapse of Mt. Gox, an exchange that rocked the global cryptocurrency market in 2014. An estimated $450 million worth of bitcoins were stolen at the time, but that figure has since been revised down.

According to Coincheck's website, the company was founded in 2012 and had 71 employees as of July. It is headquartered in Shibuya, Tokyo, where start-ups are concentrated and Mt. Gox is also headquartered.