Over the two years since the Digital Asset User Protection Act took effect, financial authorities have completed investigations into about 40 cases of unfair trading in digital assets and referred about 30 of them to investigative agencies through complaints or notifications.

The Financial Services Commission and the Financial Supervisory Service said on Saturday the number of suspects flagged during the period totalled 25, and the average illicit gain per case was about 1.4 billion won.

After the law took effect on July 19, 2024, authorities set up a dedicated organisation and built a system for constant monitoring of abnormal trading at exchanges and an investigation system. They later introduced digital forensics and an administrative fine system and have carried out investigations and sanctions for cases where suspicions were confirmed.

The number of completed investigations totals about 40 cases. About 30 of them led to complaints or notifications to investigative agencies.

Most cases involved market manipulation. Authorities detected so-called "racehorse" schemes that concentrate orders in specific time slots to push tokens into the top ranks by price gains and then lure buying, as well as "fish trap" schemes that artificially drive up prices of tokens whose deposits and withdrawals have been halted.

Authorities also confirmed short-term market manipulation cases in which traders borrowed application programming interface (API) keys to place high-frequency trades and submit spoof orders.

The investigation list also included mid- to long-term market manipulation cases that mobilised large funds in connection with issuing foundations or used overseas and domestic exchanges together.

In a fraudulent trading case, a person related to the issuance of a digital asset bought the asset in advance, spread false information on social media (SNS) to lure buying and then sold holdings.

Authorities also detected a case that exploited the price linkage structure between the Tether market and the Bitcoin market within an exchange.

A total of 25 suspects were referred through complaints or notifications. Because ultra-short-term manipulation typically targets multiple tokens, the number of implicated tokens averaged eight per case.

Average illicit gains per case were about 1.4 billion won. There were eight cases with illicit gains of at least 500 million won and less than 5 billion won, and one case with illicit gains of at least 5 billion won.

Authorities imposed administrative fines of 125 to 165 percent of illicit gains in one fraudulent trading case and one market manipulation case.

Authorities said they also responded to cross-border trades, including securing trading data from overseas exchanges while detecting ultra-short-term manipulation, manipulation linked to issuing foundations and trading linked to overseas exchanges.

They are also using artificial intelligence (AI) technology in market surveillance. Authorities said they developed functions to analyse manipulation by the second and automatically extract suspects and suspected periods, helping them catch abnormal trades early and shorten investigation time.

Digital asset exchanges are also operating constant monitoring systems by setting standards for detecting abnormal trades and notifying financial authorities and investigative agencies of suspicious trades.

They are also taking preventive steps by warning users who repeatedly place orders with a high likelihood of unfair trading and restricting their orders.

Authorities plan to review introducing an account and payment freeze system to prevent concealment of illegal gains, and a system of rewards for reporting unfair trading, in a digital asset law to be enacted.

A financial authorities official said, "We will thoroughly investigate illegal acts and take strict action in response to unfair trading in digital assets that is becoming increasingly sophisticated, larger in scale and more complex."