South Korean CEO receives three-year sentence in first conviction under new crypto protection law

A South Korean court has handed down a three-year prison sentence to the chief executive of a local crypto asset management firm, marking the country’s first conviction under its newly enacted Virtual Asset User Protection Act and signaling a tougher approach to crypto market manipulation.

The ruling, delivered by the Seoul Southern District Court on February 4, 2026, addresses alleged price manipulation activities that generated billions of won in illicit profits and raised broader concerns about investor protection and market integrity.

The case centers on Jong-hwan Lee, who was found guilty of using automated trading strategies to distort the price and trading volume of a cryptocurrency known as ACE between July and October 2024.

Prosecutors argued that the scheme undermined fair price discovery and eroded trust in the rapidly growing digital asset market, a concern that has increasingly preoccupied regulators worldwide amid repeated cases of crypto market manipulation.

Court ruling highlights crypto market manipulation risks

According to court findings reported by Hankyung, Lee was sentenced to three years in prison for violating the Virtual Asset User Protection Act, which came into force in July 2024.

In addition to the prison term, the court imposed a fine of 500 million won (approximately $343,939) and ordered the forfeiture of around 846 million won ($581,963) in criminal proceeds.

While the court chose not to detain Lee immediately citing his compliance and good behavior during the trial it underscored the gravity of the offense. In its ruling, the court emphasized the broader harm caused by crypto market manipulation, describing it as a serious threat to the credibility of digital asset markets.

“This is a serious crime that obstructs the fair price formation of the virtual asset market and undermines investor trust,” — Seoul Southern District Court, as quoted in the translated report.

“A strict sentence is necessary as he has failed to realize the severity of his actions or show remorse,” the court added.

How the alleged manipulation scheme worked

Investigators detailed how Lee allegedly deployed an automated trading program to generate artificial trading activity in the ACE token. Between July 22 and October 25, 2024, the system repeatedly placed wash trades transactions that create the illusion of market demand without genuine economic purpose to inflate trading volumes and influence prices.

Before the program was activated, the ACE token recorded an average daily trading volume of roughly 160,000 units. The following day, volume reportedly surged to 2.45 million units. Investigators found that Lee’s accounts were responsible for approximately 89% of all trades during that period, a concentration that raised red flags for regulators monitoring crypto market manipulation.

Prosecutors alleged that these actions resulted in illicit gains totaling 7.1 billion won ($4.88 million). However, the court issued a partial acquittal regarding the full amount, citing insufficient evidence to conclusively attribute all of the alleged profits to the manipulation scheme.

Co-defendant sentencing and legal significance

The case also implicated another individual, Min-cheol Kang, a former employee of Lee’s firm. Kang was convicted on similar charges of conspiring to manipulate the token’s price but received a comparatively lighter sentence: two years in prison, suspended with three years of probation.

Despite the partial acquittal on the profit calculation, legal analysts say the ruling is significant because it establishes judicial standards for identifying and punishing crypto market manipulation under South Korea’s new regulatory framework.

The Virtual Asset User Protection Act was designed to close long-standing regulatory gaps by explicitly prohibiting unfair trading practices, mandating disclosure requirements, and strengthening enforcement powers.

This case is the first to test the law in court, making it a benchmark for future prosecutions involving wash trading, spoofing, and other forms of crypto market manipulation. Observers note that the court’s language signals a willingness to impose custodial sentences, rather than fines alone, to deter similar conduct.

Broader regulatory implications for South Korea’s crypto industry

The conviction comes as South Korean lawmakers work on additional legislation aimed at further regulating the digital asset sector. A follow-up bill, tentatively titled the Digital Asset Basic Act, is expected to introduce comprehensive rules governing stablecoins, token issuance, and exchange operations.

Regulators have argued that stronger oversight is necessary to prevent systemic risks and recurring incidents of crypto market manipulation, particularly as retail participation in digital assets remains high in South Korea. The country is one of the world’s most active crypto markets, with millions of individual investors trading tokens daily.

By enforcing the Virtual Asset User Protection Act in this case, authorities appear intent on sending a clear message: practices that distort prices and mislead investors will face serious legal consequences.