[Inside Chodong] Everyone Is an Accomplice in Letting Cheating Prevail

"The market has stopped. Investments that were supposed to come from securities firms and capital companies have completely fallen through and are at a standstill."

An executive at a major domestic venture capital firm responded this way when asked about the aftermath of the stock price crash triggered by Societe Generale (SG) Securities. As trust is shaken, money does not circulate well. In the capital market, trust means 'certainty about expectations.' It is the confidence that 'if I entrust this money there, it will be returned with profit.' This kind of trust is collapsing in our capital market right now. Who should be held responsible for this situation?

The prosecution is investigating Ra Deok-yeon, CEO of Hoan, the key figure in the stock price crash, and his close associates. However, no one believes that this incident is solely the responsibility of Ra Deok-yeon and his group. A CEO of a financial company with 30 years of experience in the capital market immediately raised a fundamental question: "There is already a credit loan stock purchase system, so why was the Contract for Difference (CFD) additionally created? Didn't the Financial Services Commission focus too much on the 'bright side'?"

Let's trace back the storyline of this incident. Initially, there was the Financial Services Commission that approved the CFD product under the pretext of revitalizing the capital market and deregulation. Afterwards, the FSC relaxed the requirements for designating individual professional investors who could use the CFD service. Behind this were securities firms dreaming of diversifying their profits and investors aiming for the anonymity and leverage effects of CFDs. And there was the Korea Exchange’s supervisory function. Of course, in relation to this incident, it did not operate for years. In the dark gaps created by deregulation, lax supervision, and market greed, the virus of 'manipulation' slowly spread over several years.

In the 1990s and early 2000s, manipulation groups were typically organized like this. First, there was a fund manager who acted as the head of the operation, followed by institutions such as insurance companies. Each branch of securities firms had 'runners,' and even 'puppeteers' from supervisory bodies like the exchange or prosecution were mobilized. For the operation to succeed, there had to be 'helpers' tightly connected in each field. Even when key figures occupying major gateways in the capital market and social system colluded to devise a meticulous deviation operation, there was a final checkpoint. If the major shareholder of the manipulated stock noticed and neutralized it through a paid-in capital increase or other means, the operation immediately failed. This means that for an operation to succeed, it had to pass through numerous checkpoints. For a single operation to succeed, major participants in the capital market had to either assist or at least close their eyes.

In other words, this incident could have been primarily prevented if the FSC had seriously considered the side effects when approving the CFD product and relaxing the individual professional investor requirements. During the operation process, the Financial Supervisory Service had opportunities to point out loopholes in the system. Next, securities firms should have faithfully fulfilled their duty of care to monitor for abnormal signs in CFD trading. The major shareholders of the plummeting stocks could have noticed the manipulation when the company’s stock price unusually surged and taken appropriate measures.

However, no one did. Silently, everyone effectively became accomplices with Ra Deok-yeon, and the market collapsed. This is not simply a matter of good versus evil. It is an incident where the minimum driving force necessary for money to circulate in the market?trust?was destroyed. To trust each other, entrust money again, expect profits, and allow money to flow where needed, all participants in the capital market must act as guardians of trust. Rule-breakers always appear in the market. The key is to create a market where cheating cannot win.

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