South Korea's Financial Services Commission approved the referral of two virtual asset market manipulation cases to prosecutors at its 12th regular meeting on July 1. According to reports from the FSC, the cases involve alleged trading tactics that regulators say distorted prices and drew retail investors into risky trades. The first case centers on a large crypto holder who allegedly used large funds over about two months to control the price of a token listed on both domestic and overseas exchanges. This marks one of the most aggressive enforcement actions under the country's relatively new Virtual Asset User Protection Act (VAUPA), which took effect in July 2024. The FSC's decision to refer these cases during a regular meeting, rather than at a special session, suggests that crypto market enforcement is becoming part of the regulator's routine operations rather than a one-off event.
The first suspect allegedly used tens of billions of Korean won to buy nearly half of the token's global circulating supply. As reported by the FSC, the suspect gained a dominant position in the market and created artificial buying pressure. The regulator said the suspect first pushed up the token price on overseas exchanges, with price moves then influencing the same token on South Korean exchanges and drawing local investors into the market. The suspect lost money overseas but made larger gains on domestic platforms, leaving losses concentrated among Korean investors. The FSC reports that once the position was established, the trader allegedly used "linkage strategies" across domestic and international exchanges to artificially inflate prices in Korean markets, resulting in substantial profits at the expense of everyday Korean investors. The alleged manipulation crossed borders, using positions on international exchanges to influence prices on domestic ones, making this case particularly relevant for international investors.
Korean stock products with up to 150x leverage are spreading rapidly on overseas cryptocurrency exchanges, raising significant concerns over investor protection gaps. Major overseas exchanges including Binance, KuCoin, OKX, Bybit, Bitget, MEXC, XT, and BitMart have successively listed leveraged futures tied to the Korean stock market since last month. Binance first introduced Korean stock market-related products on November 2, launching perpetual futures based on Samsung Electronics, SK hynix, and Hyundai Motor with maximum leverage of 20x. Since November 22, Binance expanded these products to as much as 50x leverage, with KORUUSDT based on the triple-leveraged KOSPI ETF reaching trading volumes of $1.355 billion from November 22 to 29. The products have attracted significant trading activity, with SKHYNIXUSDT recording cumulative trading value of $6.42 billion from November 2 to 26, while Samsung Electronics and Hyundai Motor products also showed substantial trading volumes.
The second case focuses on what regulators described as sophisticated short-term manipulation of so-called kimchi coins. According to the FSC, the alleged manipulators used API-driven market orders and strategically placed high-price limit buys on online channels to pump prices before executing coordinated sell-offs. The FSC notes that small-cap tokens with thin order books can move sharply when a few accounts dominate trading. The Financial Supervisory Service uncovered this case in a targeted probe, finding that the suspect bought so-called kimchi coins in advance and then repeatedly placed market buy and sell orders through an API channel. At the same time, the suspect repeatedly submitted high-priced buy orders above the 10th-best ask through a web channel to push prices higher. After buying interest flowed into the market, the suspect allegedly sold holdings in split orders to realize gains. This case demonstrates the regulator's focus on technical capabilities, indicating they are investing in forensic tools needed to build cases around specific manipulation techniques.
Following the referrals, South Korean financial authorities have announced plans to enhance transparency regarding the accumulation and disposal of assets by large-scale investors. They also intend to improve the market warning system to detect and flag instances where trading becomes heavily concentrated within a small number of accounts. These measures signal a broader commitment by the FSC to enforce the country's recently enacted Virtual Asset User Protection Act, which came into effect in July 2024. Under VAUPA, individuals found guilty of market manipulation can face criminal penalties, including imprisonment for up to life in certain severe cases, as well as fines. The FSC's proactive enforcement actions are likely to deter future manipulation attempts, potentially reducing volatility and increasing market integrity. For investors, this signals a maturing regulatory environment that prioritizes fair trading conditions and investor protection.
