Why the Bill to Strengthen Punishment for Stock Price Manipulation Passed the Political Affairs Committee After 5 Years

At the time, a fellow party member on the Political Affairs Committee raised issues with the fine imposition procedure
Stalled in the Political Affairs Committee and automatically discarded due to the expiration of the 20th National Assembly's term
Park Yong-jin, who also entered the 21st National Assembly, proposed a revised amendment bill

Baek Hye-ryun, Chair of the Political Affairs Committee, is striking the gavel at the plenary meeting of the Political Affairs Committee held at the National Assembly in Yeouido, Seoul, on the afternoon of the 6th of last month. Photo by Yonhap News

Following the stock market crash triggered by Soci?t? G?n?rale (SG) Securities, the political sphere is busy preparing legislation to strengthen penalties for stock price manipulation crimes. Yoon Chang-hyun, a member of the People Power Party, plans to submit a bill this week that includes provisions to ban new investments and account openings for up to 10 years upon detection of unfair trading practices such as stock price manipulation.

Particularly, attention is focused on the passage of the 'Unfair Act Unjust Profit Calculation Act (Capital Market Amendment)' which was first proposed in 2018 and has recently passed the Political Affairs Committee after five years. If this bill fails to pass during the May extraordinary session of the National Assembly, it is expected to remain difficult to confiscate unjust profits gained from stock price manipulation crimes in the future.

This bill was initially proposed by Park Yong-jin of the Democratic Party of Korea in 2018. It includes provisions to specify the method of calculating profits obtained from unfair acts such as stock price manipulation in the legal text. The core of punishing stock price manipulation crimes lies in calculating the amount of 'unjust profit,' but current law lacks a legal basis for such calculation.

Seoul Administrative Court Cancels Fine Imposed in 2018 Stock Price Manipulation Case

The legislative impetus for Park Yong-jin came from a 2018 ruling by the Seoul Administrative Court. In June 2017, the Financial Services Commission imposed fines amounting to tens of millions of won on investor A and his brother. This was because the brothers pre-purchased 'Ban Ki-moon theme stocks' in September-October 2016 and repeatedly placed high-priced buy orders for one share hundreds of times over an average of 2-3 minutes, earning over 80 million won in profits.

This case attracted market attention as it was the first time since the July 2015 amendment of the Capital Markets Act that the Financial Services Commission imposed fines on individual investors. Previously, when unfair acts occurred in the stock market, the prosecution determined whether to indict and contested criminal charges in court. It usually took 2-3 years to prove illegality in court. During this process, concerns were raised that perpetrators might engage in further stock price manipulation or conceal criminal proceeds. Consequently, there was a call for administrative sanctions (fines) that are easier to prove illegality, leading to the amendment of the law.

When the Financial Services Commission imposed fines based on the amended Capital Markets Act, the A brothers filed an administrative lawsuit. In August 2018, the Seoul Administrative Court’s Administrative Division 7 (Presiding Judge Ham Sang-hoon) ruled to cancel the fines, stating, "It cannot be definitively concluded that their profits were entirely due to unfair acts." The court judged the illegally obtained profits as 'unknown' due to the lack of a legal basis to calculate their criminal proceeds. This is based on the principle in civil law that liability is only borne for acts with attributable fault. It is necessary to distinguish profits gained from stock price manipulation from those gained from positive factors such as improved performance, but current law does not specify a method for calculating unjust profits.

Bill Including Unjust Profit Calculation Proposed... Opposition Over Fine Imposition Procedure

In response, Democratic Party members Park Yong-jin and Yoon Kwan-seok proposed related bills. Park proposed a bill regulating the method of calculating unjust profits, while Yoon proposed a bill allowing fines to be imposed for the three major unfair acts (insider trading, market manipulation, and fraudulent trading).

At the time, the Democratic Party planned to pass both bills simultaneously. However, they encountered an unexpected obstacle. A member of the same party on the Political Affairs Committee opposed the bills. The office of this member explained the opposition by stating, "Currently, when unfair acts such as stock price manipulation occur, the prosecution confirms the facts, and based on this, the Financial Services Commission imposes fines," adding, "Under administrative law, the administrative agency (Financial Services Commission), not the prosecution, should confirm facts and impose fines if a violation occurs." The implication was that the Financial Services Commission should independently impose fines like the Fair Trade Commission.

This member strongly opposed the Financial Services Commission’s fine imposition procedure. Procedurally, when market-disrupting acts occur, fines are imposed through the sequence 'Financial Services Commission (Securities and Futures Commission) → Prosecution → Financial Services Commission (Securities and Futures Commission).' When the Securities and Futures Commission recognizes unfair act suspicions and notifies the prosecution, the prosecution delivers the investigation results to the Financial Services Commission, which then imposes fines.

Especially, the member’s office insisted that even considering the legislative intent, passing the bill was inappropriate. A representative said, "The 2018 bill stated that 'the Financial Services Commission imposes fines after receiving investigation results from the Prosecutor General,'" and argued, "If the prosecution is officially (legally specified) involved in fact-finding for behavioral investigations, it would inevitably recognize prosecution involvement in all behavioral investigations."

Due to opposition from a member of the same party, the bills failed to pass the Political Affairs Committee, and time passed as the 20th National Assembly came to an end. Ultimately, all bills to strengthen penalties for stock price manipulation were automatically discarded in May 2020 due to the expiration of the lawmakers’ terms. When a lawmaker’s term or session expires, all bills not passed by the plenary session are automatically discarded.

Bill Including Unjust Profit Calculation Method Passes Political Affairs Committee... Passage in Plenary Session Uncertain

Later, Park Yong-jin, who entered the 21st National Assembly, submitted an amendment bill in 2020 that included Yoon’s fine imposition provisions. With the Yoon Suk-yeol administration making 'eradication of unfair acts' a national agenda, the ruling party also supported the bill’s passage. The previously opposing member again opposed the bill. However, during consultations with Financial Services Commission and Ministry of Justice officials at the Political Affairs Committee’s bill subcommittee in the 21st National Assembly, the phrase 'confirm facts through the prosecution' was removed from the law, leading the member to change to support. This is why the bill first proposed by Park Yong-jin in 2018 barely passed the Political Affairs Committee after five years.

According to Park Yong-jin’s office, the method for calculating unjust profits from unfair trading is specified as the difference between total revenue generated from illegal transactions and total costs for those transactions. Instead, the calculation method is to be determined by presidential decree for each type to reduce legal disputes. This bill is scheduled to take effect from the date of promulgation and will apply to cases under investigation or trial at the time of enforcement, clarifying the legal basis for punishing those who gain unjust profits from unfair trading.

The proposed bill will be submitted to the plenary session after passing through the relevant standing committee and the Judiciary Committee. Although the stock price manipulation-related bill has attracted attention due to the SG-triggered stock crash, its passage remains uncertain. The May extraordinary session of the National Assembly has convened, but detailed schedules have not yet been set.

There is a way forward. If the Judiciary Committee does not review the bill within 60 days, the relevant standing committee can submit it to the plenary session by vote. At this time, at least three-fifths of the total members must agree. Since both ruling and opposition parties share a consensus on passing the bill, direct submission to the plenary session is also possible.

A lawmaker who supports the bill said, "Whether the cat is black or white, as long as it catches mice well, it doesn’t matter," adding, "If the bill passes, it will establish a legal basis to recover unjust profits from stock price manipulation criminals."

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