South Korea Jails Crypto CEO in First Virtual Asset Law Case

The sentencing of Jong-hwan Lee represents a critical test case for South Korea’s regulatory framework. The court found that between July 22 and October 25, 2024, Lee employed an automated trading program to artificially inflate trading volumes and execute wash trades for the ACE cryptocurrency. This manipulation caused the token’s daily trading volume to skyrocket from approximately 160,000 units to 2.45 million units overnight, with Lee’s activity accounting for a staggering 89% of the total. The judges ruled that this scheme violated the Virtual Asset User Protection Act, which only came into effect in July 2024, making this prosecution its inaugural enforcement.

While the court confirmed the defendants’ guilt in manipulating ACE for illicit profits, it partially acquitted them regarding the precise 7.1 billion won ($4.88 million) profit figure cited by prosecutors, citing insufficient evidence. Despite this, the penalties were severe: a three-year prison term, a 500 million won ($344,000) fine, and the forfeiture of roughly 846 million won ($581,900) in criminal proceeds. Min-cheol Kang, a former employee also indicted, received a two-year prison sentence suspended for three years of probation. Notably, Lee was not taken into custody immediately, with the court citing his good behavior during the trial.

As the courts move to punish market manipulation, another branch of South Korea’s legal system is grappling with a catastrophic security failure. In a separate incident, prosecutors are investigating the disappearance of a large cache of Bitcoin that had been seized and stored as evidence in a criminal case. The loss was discovered during a routine internal inspection at the Gwangju District Prosecutors’ Office. While authorities have not confirmed the exact amount, local media estimates the missing Bitcoin could be worth around 70 billion won, or roughly $47.7 million.

The investigation points not to a direct breach of government systems, but to a potential phishing attack. Officials suspect an agency worker may have accessed a fraudulent website, inadvertently exposing wallet passwords or access credentials stored on removable devices like USB drives. This allowed attackers to drain the seized funds. This incident starkly highlights the operational vulnerabilities and custody challenges that persist even within official institutions tasked with handling digital assets, raising serious questions about procedural safeguards for confiscated crypto.

These two concurrent cases—one a successful prosecution, the other a major security lapse—paint a complex picture of South Korea’s crypto regulatory environment. The conviction of Jong-hwan Lee demonstrates the judiciary’s willingness to apply the Virtual Asset User Protection Act with tangible consequences, setting a precedent that market manipulation will be met with significant prison time and financial penalties. This is a clear deterrent aimed at curbing the wash trading and volume inflation that have plagued cryptocurrency exchanges.

However, the loss of $47.7 million in seized Bitcoin from the Gwangju District Prosecutors’ Office reveals a critical gap between establishing laws and implementing secure operational protocols. It underscores that robust regulation requires not just punitive measures for bad actors, but also ironclad security and accountability for the authorities themselves. Together, these events signal that South Korea is entering a new, more stringent phase of crypto oversight, yet one where enforcing the rules and securing the assets remain formidable, parallel challenges.