South Korean Prosecutors Indict Five in Meme-Coin False Disclosure, Rug-Pull Case

South Korean prosecutors indicted a group accused of inflating a meme coin through false disclosures and social-media promotion before cashing out. The case is the first to apply the fraudulent unfair-trading provisions of the country's Virtual Asset User Protection Act.

Newsis reported on May 27 that the Seoul Southern District Prosecutors' Office Joint Investigation Unit for Virtual Asset Crimes indicted five people, including three alleged market manipulators led by a crypto investor and influencer identified only as A, and two others accused of aiding their escape. The defendants were charged with violations including the Virtual Asset User Protection Act.

Prosecutors allege the group issued the meme coin between Jan. 31 and Feb. 2, 2025, bought it in advance and drew in investors through false upbeat disclosures and social-media promotion.

The defendants issued the token on meme-coin platform Pump.fun and then posted false notices on an official social-media account suggesting a lockup, or selling restriction, had been imposed, according to prosecutors. A, who had several thousand followers, recommended buying the coin on social media. Accomplices also manipulated follower counts and used circular trading to make the token appear highly safe, prosecutors said.

The coin's price jumped 1,001-fold in 26 hours. About 6,000 people bought the token, and 256 investors suffered combined losses of about $653,000, prosecutors found.

The defendants, meanwhile, allegedly used about $7,300 in funds for the scheme and reaped about $290,000 in illegal gains in roughly 30 hours.

Prosecutors described the case as the first since the Virtual Asset User Protection Act took effect to invoke its fraudulent unfair-trading clause. They also said it was the first prosecution of a virtual-asset crime conducted through a decentralized exchange, an area widely viewed as a regulatory blind spot.

After a referral from the Financial Services Commission, prosecutors worked with the Financial Security Institute, Korea Deposit Insurance Corp., the National Tax Service and the Financial Supervisory Service's Virtual Asset Investigation Bureau to trace the token's issuance and circulation and the flow of criminal proceeds. Authorities also seized virtual assets and other property used in the scheme and moved to preserve assets for forfeiture.

"Unfair trading is a representative market-manipulation crime that undermines market order," a prosecution official said. "We are working to make clear that market manipulators will inevitably be ruined."