South Korea: Crypto Exchange Execs Indicted on Manipulation Charges
A number of executives at Coinone, one of South Korea’s leading cryptocurrency exchanges, have been indicted on charges related to market manipulation.
That’s according to a report published by South Korean news outlet, The JoongAng, on Monday. The complaint details no less than forty-six coins that are alleged to have been the subject of manipulation in some form. That represents one in four of the total number of coins that the exchange has enabled for trading on the platform.
Four executives indicted
The indictment lists four Coinone executives, Mr. Jeon, Mr. Kim, Mr. Ko, and Mr. Hwang. The four have been charged with employing illegal mechanisms to manipulate coin listings, resulting in the four executives profiting to the tune of 2.98 billion Korean Won, which amounts to $2.26 million dollars according to current fx exchange rates.
The complaint specifies that these offenses were committed between December 2019 and November 2022. South Korean prosecutors further allege that prior to various projects obtaining a token listing on Coinone, company executives made them sign third-party market-making contracts. That in and of itself is not unusual.
One of the key aspects of a new coin listing (and an ongoing listing for that matter), is the need to have sufficient liquidity in place to ensure that the coin can be traded without being susceptible to market manipulation. Low liquidity conditions open the door to bad actors moving the market relative to a particular token.
Cross trading
The indictment is far more specific in calling out illegal cross trading activity. It’s likely that these key Coinone employees would have been expecting such an indictment to land at their doors. Last week, it emerged that LUNA tokens associated with Terraform Labs’ failed Terra USD (TUSD) algorithmic stablecoin project, had been illegally cross traded on three South Korean crypto exchanges: Bithumb, GoPax and Coinone.
Cross trading is the practice of trading an asset on an exchange without recording the transaction transparently on the exchange. Strictly speaking, the activity can be legitimate although most exchanges prohibit the practice as it can be used to affect market manipulation.
A cross trade could be permitted in a scenario where the price is deemed to be competitive at the time that the trade takes place. While this can more easily be determined in conventional markets as the practice is covered by specific regulation, that’s not the case in most jurisdictions right now where digital asset trading is concerned. By extension, there’s a complete lack of transparency and a lack of reporting.
As other market participants don’t have visibility of this type of trading activity, they are unaware as to whether a better price is available on the market or not. In an unregulated state, the practice undermines trust.
In the case of Coinone, the executives enabled the practice in order to provide an illusion with regard to trading activity. That meant that trading volumes claimed were inaccurate, misleading ordinary traders and exchange users. Along with trading volume in these coins being artificially boosted, so too were token prices.
In the indictment, prosecutors explicitly alleged that cross trading was being employed in an illegal manner:
“This price manipulation causes misunderstandings about the trading volume and market price among general members of the exchange, and induces [service users] to participate in the coin transaction and buy the coin.”
