South Korea Weighs Freezing Crypto Accounts, Rewarding Tipsters in Market Abuse Cases

South Korea’s financial authorities are considering an account-freeze system and rewards for tipsters who report unfair trading in virtual assets, as they seek to prevent the concealment of illicit profits.

On July 20, the Financial Services Commission and the Financial Supervisory Service released the results of unfair-trading investigations conducted over the past two years and outlined next steps, marking the second anniversary of the Virtual Asset User Protection Act.

Since the law took effect on July 19, 2024, authorities have completed investigations into more than 40 unfair-trading cases. More than 30 of those were referred or reported to investigative agencies, and 25 suspects were identified.

Most of the cases involved price manipulation. Authorities identified ultra-short-term schemes including “racehorse” trades, in which orders are concentrated during a specific period to propel a token into the top ranks for price gains and lure in investor buying. They also found “corral” schemes, in which traders artificially pushed up prices by exploiting suspensions of deposits and withdrawals for specific virtual assets.

Authorities also uncovered cases in which traders borrowed API keys to manipulate prices over a short period. In other cases, so-called large whales linked to token foundations mobilized sizable funds and used overseas exchanges to intervene in prices.

In one fraudulent-trading case, people involved in issuing a memecoin bought the token in advance, posted false information on social media to induce investor buying, and then sold all of their holdings, pocketing illicit gains worth hundreds of millions of won. Authorities also found cases that exploited the price-linkage structure between Tether and Bitcoin markets on exchanges.

Average illicit gains were about 1.4 billion won, or roughly $1 million, per case. Eight cases involved illicit gains of 500 million won to 5 billion won, a range subject to enhanced criminal punishment, while one case involved more than 5 billion won. The average number of virtual assets tied to each case was eight.

Authorities imposed surcharges equal to 125% to 165% of illicit gains in two cases to claw back unlawful profits, one involving fraudulent trading and the other price manipulation.

They also strengthened market surveillance and investigations. Authorities built a real-time market monitoring system and an artificial intelligence-based surveillance and investigative framework with second-by-second analysis of price manipulation and automated detection of suspect groups and suspect periods. Virtual-asset exchanges are also operating always-on monitoring systems for abnormal trading and have stepped up preventive measures, including restricting orders linked to repeated suspicious activity.

Authorities plan to expand enforcement tools against unfair trading in virtual assets. They are reviewing whether to introduce, in the second phase of the Digital Asset Act, an account-freeze regime modeled on the capital-markets framework to prevent the concealment of illegal profits, along with a reporting and reward program designed to detect misconduct at an early stage.

The authorities said they would devote all available resources to establishing a fair and transparent market order that users can trust as unfair trading in digital assets grows more sophisticated, larger and more complex.