On February 4, the Criminal Division of the Seoul Southern District Court (Presiding Judge Lee-hee) sentenced Lee Jong-hwan, the CEO of a South Korean cryptocurrency company, to up to 3 years in prison for manipulating virtual asset prices.
Lee Jong-hwan was additionally penalized 500 million won and fined an additional 846.56 million won for breaking the Virtual Asset User Protection the day before. Kang Min-cheol, a former employee who was also charged, received a two-year prison sentence with a three-year suspension.
Court details methods behind ACE coin price manipulation
Hankyung, a local news outlet, reported that the court found that Lee engaged in price manipulation between July 22 and October 25 of last year by repeatedly purchasing and selling “ACE Coin,” which was listed on the virtual asset exchange Bithumb, at noticeably higher or lower prices.
According to the court, it is difficult to anticipate profits even if the price rises in a structure in which high-priced buying and low-priced selling are repeated in very short intervals, and losses are certain to increase if the price falls. The court further noted that it is hard to regard this as a typical investment activity, as there is no rational objective other than increasing trade volume.
The court also observed that Lee frequently filed “dummy buy orders” with a very low likelihood of execution. This suggested a long line of buy orders at the bottom of the order book, creating a buy wall.
Hankyung reported that the court found insufficient evidence for the prosecution’s allegation of 7.1 billion won in illicit gains. According to the report, this resulted from the prosecution’s failure to precisely ascertain the transaction amounts and commissions for hit buys and sells, as well as the inclusion of transactions not included in the indictment in the data used to calculate ill-gotten earnings.
The court stated, “The Virtual Asset User Protection Act considers profits obtained through violations as a component of criminal penalties, and therefore the value must be calculated strictly and carefully.”
As a result, the defendant received a sentence that was less severe than what the prosecution had requested (10 and 6 years in jail, respectively).
South Korea strengthens oversight on crypto market manipulation
This ruling marks the first conviction under the new Virtual Asset User Protection Act, which took effect in July 2024. The court revealed, “To the best of my knowledge, this is likely the first case to result in a verdict under this Act.”
The court further stated that the defendants’ actions constitute a severe felony that seriously erodes users’ confidence in the virtual asset market and compromises its fair price formation function.
Legal experts say the ruling also sheds light on how manipulation schemes operate in illiquid markets. Attorney Lee Bo-hyun of Hwawoo Law Firm stated that this ruling demonstrates that price manipulation occurs when an asset’s trading volume is intentionally increased to create buying pressure on virtual asset exchanges that lack institutional investors (LPs).
Notably, under the Virtual Asset User Protection Act, those who engage in unfair trading practices may be subject to criminal penalties, such as a minimum one-year jail sentence or a fine equal to three to five times the amount of illicit proceeds. It is also possible to be fined up to 4 billion won, which is twice the amount of ill-gotten gains.
According to the South Korea Financial Services Commission (FSC), the Act also gives the FSC the power to investigate and take appropriate action regarding unfair trading practices, as well as to supervise and inspect VASPs. The Financial Supervisory Service will be responsible for inspecting VASPs.
Investigating individuals suspected of participating in or being involved in unfair trading operations shall fall within the purview of the FSC and the FSS. The FSC has the authority to refer the case to the Prosecutors’ Office, order business suspension, or take corrective measures when an Act violation is discovered.
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