South Korean authorities scrutinize crypto market manipulation allegations

The FSC in South Korea has referred two cases of crypto market manipulation to local investigative authorities. The suspects pre-accumulated crypto worth tens of billions of Korean won, then repeatedly submitted high-priced orders, mobilizing hundreds of billions of Korean Won.

The Commission reportedly explained that suspects in the first case allegedly mobilized hundreds of billions of Korean won to artificially inflate crypto prices to target levels through high-priced purchases. They submitted sell orders at higher prices than their buying prices, then manipulated the trades to ensure the crypto prices reached the sell order price. The Financial Supervisory Services detected the case during a routine crypto monitoring exercise.

Unsuspecting users assumed the price was increasing naturally and bought into the ruse, buying more of the coin as the price soared to reach the pre-submitted sell orders. They reportedly gained tens of billions of Korean won in illicit profits through this scam.

In the second case, the suspects used APIs (automated trading programs) to inflate trading volumes. They repeatedly executed market-price buy and sell orders for specific cryptos several times per second over an undisclosed period. The suspects also submitted high-priced buy orders manually to create the illusion of rising prices.  

Suspects manipulated screen to mimic active trading

The FSC pointed out that the suspects in the second case allegedly exploited the visual effect of the exchange’s screen, capitalizing on the typical user perception that the frequently flashing red line signifies active trading. The current price border changes to a red line to indicate price increases whenever a specific crypto price fluctuates.

The Financial Services Commission urged investors to exercise caution when the price of a low-liquidity cryptocurrency rises or trading volume surges, as a correction may cause the price to plummet. It also warned that anyone using unscrupulous means to artificially attract buying and selling interest, or manipulate prices through high-price sell and buy orders, will face fines and penalties under the Virtual Asset User Protection (VAUP) Act.

The FSC announced on November 4 that the government has approved a revision bill for the Enforcement Decree of the Special Act on the Refund for Loss. The revision aims to strengthen the responsibility of financial companies in preventing losses resulting from financial fraud. 

FSC freezes $61.4M worth of crypto in six years  

The FSC recently disclosed that it has frozen nearly $61.4 million worth of digital assets across several crypto trading platforms in its efforts to combat crypto fraud over the past six years. The cumulative amount was revealed in a report submitted to lawmaker Wi Seong-gon’s office, highlighting the commission’s ongoing efforts to combat crypto-related crime. Most of the freezes stem from suspected fraud and violations of the VAUP Act.

The submitted report confirmed that the frozen crypto assets include $37.4 million worth of crypto assets affected by Bithumb’s 2020 suspension of withdrawals. The suspension was connected to 8,666 fraud cases.

The FSC also froze crypto assets worth $18.9 million across 30,106 cases between 2020 and September this year. The regulator froze another $4.4 million worth of crypto, which was blocked on the Coinone exchange in connection with 755 cases. Nearly $296,000, involving 529 cases, was also frozen on Korbit, while a further $222,000, involving around 280 cases of non-compliance with the region’s regulations, was frozen on the Gopax exchange. 

South Korea recently updated its crypto regulations to cover stablecoins, investor protection, mining, interest rates and lending, and the travel rule, creating a robust regulatory framework for its domestic crypto industry.

Meanwhile, the Act on Reporting and Use of Specific Financial Transaction Information now mandates strict AML (anti-money laundering) measures, exchange registration, and a real-name crypto platform account linked to a verified bank account. 

The FSC’s records over the past six years reveal that South Korea’s government has intensified its efforts to sanitize its crypto sector. Actions across Korbit, Bithumb, Coinone, and Gopax show the country’s sustained regulator enforcement. The revised Enforcement Decree will take effect six months after promulgation.

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