Stock Manipulation Results in Fines Twice the Amount of Unfair Profits

Financial Services Commission Holds Imposition Authority
Advance Imposition and Recovery if Investigation Prolongs

[Asia Economy Reporter Minji Lee] A plan is being promoted to allow financial authorities to impose fines up to twice the amount of unfair profits on perpetrators of stock price manipulation crimes such as market manipulation and fraudulent trading.

A Financial Services Commission (FSC) official explained on the 18th, "After recent discussions with the Ministry of Justice and the prosecution, there was a consensus that the FSC should have the authority to impose fines for unfair trading practices." Accordingly, it is expected that unfair trading offenders involved in stock price manipulation will be subject not only to administrative sanctions but also to fines to recover unfair gains.

Until now, in the securities market, the FSC was only allowed to impose fines for 'market order disturbance acts.' For unfair trading involving the use of undisclosed information, which is subject to criminal punishment, fines up to 1.5 times the amount of profit were imposed to recover unfair gains. However, for unfair trading acts subject to criminal punishment such as stock price manipulation, penalties including imprisonment of more than one year and fines or surcharges up to five times the amount of profit were imposed to recover unfair gains.

However, there have been criticisms that the recovery of unfair gains has not been properly carried out as criminal punishment for unfair trading offenders has not been effectively enforced. In criminal punishment cases, strict proof of the elements of the crime is required, so even if prosecuted for unfair trading acts, the punishment often results in probation or light penalties.

For example, in the 2018 Rocket Electric stock price manipulation case, although the court sentenced Kim Dowon, the second son of the controlling family and executive director, to two years in prison, it ruled that there were no unfair gains. He claimed that the company raised operating funds through 10.7 billion KRW worth of bonds with warrants (BW) when the company was in financial difficulty, but this was actually a false disclosure. At that time, the amount of fines imposed on Executive Director Kim was zero, and individual investors had no choice but to bear the full brunt of the stock price manipulation damage.

Yoon Kwan-seok, chairman of the National Assembly's Political Affairs Committee, on the 16th, officially proposed an amendment to the Capital Markets Act based on an agreement among the FSC, prosecution, and Ministry of Justice. The main content allows the FSC to impose fines up to twice the amount of profits gained or losses avoided through unfair trading acts and to receive investigation-related materials from the prosecution.

The timing of imposing fines was set to coincide with receiving the prosecution's investigation and disposition results, considering the existing criminal punishment procedures. However, if the investigation prolongs for more than one year, the FSC can recover unfair gains by imposing fines even before the prosecution's investigation results are out. A provision was also prepared to exclude amounts equivalent to fines from the surcharges if criminal punishment is confirmed.

Starting with this agreement, plans are expected to be promoted to legislate standards for calculating unfair gains. The prosecution has viewed that there have been many acquittals due to the lack of specific standards for calculating unfair gains under the Capital Markets Act. An FSC official said, "In the last National Assembly, Representative Park Yong-jin of the Democratic Party submitted related bills, but they were not discussed in the bill subcommittee. Additional opinions from stakeholders will be needed," adding, "There is no disagreement among the Ministry of Justice, FSC, and prosecution on the need for specific standards for unfair gains."

This content was produced with the assistance of AI translation services.