South Korean authorities scrutinize crypto market manipulation allegations

The Financial Services Commission (FSC) in South Korea has referred two cases of crypto market manipulation to local investigative authorities. The suspects reportedly pre-accumulated cryptocurrency worth tens of billions of Korean won and then submitted high-priced orders repeatedly, mobilizing hundreds of billions of Korean won. This deliberate action was aimed at artificially manipulating prices for profit.

In the first case, the suspects mobilized hundreds of billions of Korean won to artificially inflate cryptocurrency prices to predetermined target levels. They reportedly achieved this by placing high-priced buy orders, causing unsuspecting users to assume a natural price hike and buy into the scheme. When the price soared, the criminals executed their pre-submitted sell orders, generating illicit profits of tens of billions of Korean won during the process. This case was uncovered during the FSC's routine crypto monitoring efforts.

In the second case, the suspects used APIs (automated trading programs) to simulate high trading volumes. This entailed executing market-price buy and sell orders for specific cryptocurrencies multiple times per second. Beyond automated trades, suspects manually placed high-priced buy orders to fabricate the illusion of rising demand and prices. The FSC noted that the visual effect of flashing red price indicators contributed to misguiding users into believing in active trading. This exploitation of exchange screens was key to sustaining the manipulation.

The Financial Services Commission has urged investors to exercise caution, especially when encountering sudden price surges or unusually high trading volumes in low-liquidity cryptocurrencies. It emphasized that any unscrupulous activities—such as artificially attracting buyers and sellers through manipulative sell/buy orders—would result in severe penalties under the Virtual Asset User Protection (VAUP) Act. Additionally, the government has approved a revision bill for the Enforcement Decree of the Special Act on the Refund for Loss, aimed at strengthening financial companies' accountability in preventing fraud-related losses.

The FSC recently announced that it has frozen nearly $61.4 million worth of digital assets across various crypto trading platforms over the past six years. Most frozen assets are tied to suspected fraud and violations of the VAUP Act. The cumulative amount was disclosed in a recent report to lawmaker Wi Seong-gon’s office, reflecting ongoing efforts against crypto-related crimes. For example:

• $37.4 million in crypto was frozen due to the 2020 Bithumb withdrawal suspension, involving 8,666 fraud cases.
• $18.9 million was frozen across 30,106 cases from 2020 to September 2023.
• Other cases include $4.4 million on Coinone (755 incidents), $296,000 on Korbit (529 cases), and $222,000 on Gopax (280 cases).

South Korea has updated its cryptocurrency regulations to enhance industry oversight. These updates include stricter supervision of stablecoins, investor protection measures, mining regulations, interest rates and lending rules, as well as implementation of the travel rule. Additionally, the Act on Reporting and Use of Specific Financial Transaction Information mandates:

• Anti-money laundering (AML) measures
• Exchange registration
• Real-name platform accounts linked to verified bank accounts

These regulatory measures reflect a robust framework aimed at sanitizing South Korea's crypto sector and combating fraud.

The revised Enforcement Decree of the Special Act will take effect six months after its proclamation. With these changes, South Korea aims to better protect digital asset users and reduce financial fraud risks. The FSC’s actions over the past six years, such as freezing fraudulent assets, underscore the country’s intense regulatory focus on cleansing its crypto market and enforcing legal compliance.