South Korea Probes 40 Crypto Manipulation Cases Under Virtual Asset Act

South Korea's Financial Services Commission (FSC) has announced that it investigated more than 40 cases of unfair trading and market manipulation in the cryptocurrency sector over the past two years, following the implementation of the Virtual Asset User Protection Act. This initiative highlights the nation's resolve to bolster transparency and investor confidence within its digital asset market.

According to FSC Chair Lee Eog-won, over 30 of the investigated cases were reported or referred to investigative agencies, leading to the identification of 25 suspects. The Act, which became effective on July 19, 2024, explicitly prohibits unfair trading practices such as market manipulation, wash trading, and coordinated price-pumping schemes. The average illicit gains identified from these activities amounted to approximately 1.4 billion Korean won (around $940,000 USD).

The investigations uncovered various manipulation tactics, including “racehorse” and “fish farm” schemes. The “racehorse” method involves placing concentrated orders at specific times when price increase rates reset to lure investors, while the “fish farm” technique artificially inflates prices on exchanges where virtual asset deposits and withdrawals are temporarily suspended. Authorities also identified cases where meme coin issuers spread false information on social media to attract investors before dumping their holdings for illicit profits.

These regulatory actions are shaping a more transparent environment in the South Korean crypto market, albeit with increased compliance costs. Virtual asset service providers (VASPs) face heightened operational overhead due to requirements like holding customer assets in cold storage and utilizing real-name verified bank accounts. While these measures increase the burden on operators, they are designed to strengthen market integrity, promising a more orderly and secure market capable of attracting long-term capital.

South Korea's recent crackdown is a continuation of its broader regulatory journey, which includes classifying digital assets as national wealth and implementing real-name bank account mandates for crypto transactions since 2018. In an era where the global cryptocurrency market is transitioning towards institutionalization and compliance, South Korea's stringent oversight reinforces its position as a regional regulatory benchmark.

Looking ahead, the Financial Services Commission plans to further enhance market surveillance by establishing an AI-based virtual asset regulatory system. This advanced system is expected to feature real-time market monitoring, second-level price manipulation analysis, and automatic detection of suspicious accounts and trading intervals. Additionally, the possibility of preemptively freezing accounts of suspected manipulators is being considered, aiming to further secure market integrity and protect investors.