South Korea enlists AI to spot pump and dump schemes on social media, or in Spam

Main stock exchange targets shares, government agency looks for crypto crooks

South Korea’s government and main stock exchange have developed and deployed AI-powered tools to detect schemes that aim to send the price of cryptocurrencies and shares soaring so that unscrupulous investors can cash in.

Schemes of this sort are known as “pump and dump,” and see investors acquire shares or virtual assets, then spread information they hope will induce others to buy them. If the scheme succeeds, the price of the targeted assets often rises. Sadly, the information spread by schemers is usually bunk, but by the time new investors discover that the perpetrators have sold their assets at a handy profit and disappeared.

Pump and dump schemes are nothing new, but social media gave their perpetrators a new way to reach the gullible.

Which is probably why the tech developed by Korea Exchange (KRX, the country’s main bourse) can scour online posts, YouTube, and even reported cases of spam text messages for evidence of pump and dump schemes. The AI analyzes material it finds online, considers recent stock price movements, and then automatically produces reports indicating stocks that may be the subject of price manipulation schemes so that South Korean authorities can investigate further.

Regulator the Financial Services Commission (FSC) welcomed the tool and said it will reduce the time taken to analyze suspect situations.

Also on Monday, South Korea’s Financial Supervisory Service (FSS) – the FSC’s enforcement arm – announced it has enlisted AI to help it investigate suspicious cryptocurrency trades.

The FSS says it already operates a Python-based tool that can conduct large-scale data analysis, automatic calculation of abnormal trading indicators, and visualize trading patterns.

Those tools, however, struggle to keep up with high-frequency trades made using crypto-marts’ APIs. The FSS is therefore working on unspecified AI algorithms to improve its performance, and has even acquired two servers “equipped with high-performance CPUs and GPUs” so it can put AI to work sniffing out dodgy crypto deals.

Like other nations, South Korea operates a whistleblower scheme that encourages the public to report instances of fraudulent stock trading. FSC officials recently proposed increasing the rewards paid to whistleblowers in the hope it will see more come forward.

South Korea has also had its share of crypto messes, including the $40 billion meltdown of Terraform Labs, which was led by one of its citizens, Do Kwon. ®