GoKawiilLast year, a funeral services company in Korean called Bumo Sarang put 59.5 billion Won ($40 million) of its clients' money into a leveraged crypto ETF, which is now worth just 10.2 billion Won ($6.8 million), resulting in a $33 million loss. The company is downplaying this revelation, which was part of a broader investigation done by the Korean Economic Daily that highlights embezzlement as a scarily common practice in the industry.
More specifically, Bumo Sarang invested the $40 million in the T-REX 2X Long BMNR Daily Target ETF that's supposed to double the daily return of a company called BitMine — the largest Ethereum treasury in the world. This fund is a leveraged ETF, which we'll explain later in the article, but the main takeaway is that it's designed for day trading and is not supposed to be held for long periods of time.
Beyond the illegality, you can already start to piece together why keeping $40 million of customer funds in a leveraged ETF for a year was a terrible investment in general. Putting it a leveraged crypto ETF only exacerbated the losses, as the crypto market has been in a downturn for the past year. That being said, Bumo Sarang is not an isolated case — it's just the biggest one.
In the aforementioned investigation, out of 75 audited funeral service companies in Korea, 43% were technically insolvent, meaning they owe more than they own. If customers pulled out of their prepaid plans, these firms won't have the cash to pay them back. Smaller firms were even found to issue unbacked, multi-million-dollar loans to shareholders and CEOs.
To understand how all this happened, we'll have to look at how funeral services companies operate in Korea. Unlike banks, which are treated as financial institution and thus placed under much stricter scrutiny, these funeral firms are as classified as "prepaid installment businesses." They answer to the Korean Fair Trade Commission (FTC) instead and exploit the 50-50 rule that states only half of their customers' deposits are supposed to remain in cash reserves.
That doesn't mean the other half can be spent in whatever way the company desires, but it opens a loophole in which 50% of money is simply not required to be regulated. People pay these companies to arrange or prepare for their funerals ahead of time so that their loved ones aren't burdened with the process later on. The firms happily take this cash and try to make a profit on it over time, similar to how insurance companies often deny claims despite taking payments regularly.
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