[Exclusive] Director Lee Bok-hyun Rushes to the National Assembly: "Strict Punishment for Stock Manipulation... Support for the Amendment"

On the afternoon of the 26th, visited the National Assembly... Private meetings with members of the Judiciary Committee and the Political Affairs Committee
Time spent persuading and explaining the need to strengthen light punishments for stock price manipulation
If passage through the Judiciary Committee fails, no promise... Financial Services Commission "Discussing with the Court Administration"

On the afternoon of the 26th, Lee Bok-hyun, Governor of the Financial Supervisory Service, visited the National Assembly and held a private meeting with ruling and opposition lawmakers from the Legislation and Judiciary Committee and the Political Affairs Committee regarding the amendment to the Capital Markets Act. At this meeting, Governor Lee explained the necessity of passing the amendment to the Capital Markets Act, which includes the 'Financial Fraud Recovery Act' to counter stock price manipulation for the development of the capital market, and asked for their support. Governor Lee said, "It is true that I visited the National Assembly in the afternoon," adding, "In a situation where financial authorities and the Ministry of Justice are making great efforts to eradicate stock price manipulation, I took the time to explain and persuade regarding the amendment to the Capital Markets Act."

On May 23rd, at the Korea Exchange in Yeouido, Seoul, Yang Seok-jo, Chief Prosecutor of the Southern District Prosecutors' Office, Lee Bok-hyun, Governor of the Financial Supervisory Service, Kim Ju-hyun, Chairman of the Financial Services Commission, and Son Byung-doo, Chairman of the Korea Exchange (from left), are posing for a commemorative photo at the joint forum of related organizations to eradicate unfair trading. Photo by Kim Hyun-min kimhyun81@

The Financial Services Commission and the Financial Supervisory Service are making an all-out effort to eradicate stock price manipulation, including the stock price crash incident caused by Soci?t? G?n?rale (SG) Securities. To this end, the Financial Services Commission is currently implementing a three-phase plan that includes ▲ the introduction of fines ▲ restrictions on capital market transactions in cases of unfair practices ▲ the introduction of freezing measures on accounts suspected of stock price manipulation. Accordingly, the financial and supervisory authorities hold the position that the legislation of the amendment to the Capital Markets Act, which allows imposing fines for unfair capital market trading practices such as stock price manipulation up to twice the amount of illicit gains, must be enacted promptly. Previously, on the 23rd of last month, Kim Ju-hyun, Chairman of the Financial Services Commission, stated at the 'Joint Discussion Meeting of Related Agencies for Eradicating Unfair Trading' held at the KRX Conference Hall in Yeouido, Seoul, "If the amendment imposing fines up to twice the illicit gains is implemented, illegal profits can be confiscated," adding, "It will prevent the one-shot mentality of enduring a few years of imprisonment and living comfortably."

However, the amendment is currently stalled. The Legislation and Judiciary Committee held a plenary session on the 20th and submitted the amendment to the Capital Markets Act, but it was not passed due to opposition from lawmakers of the People Power Party. They raised objections regarding the method of calculating illicit gains and the penalty mitigation measures for voluntary reporters. The committee plans to hold another plenary session on the 29th to discuss these issues again. This is the background behind Governor Lee's urgent visit to the National Assembly.

Under the current law, fines cannot be imposed on the three major unfair trades (stock price manipulation, market manipulation, and insider trading). Moreover, there is no legal standard to calculate illicit gains, which has led to ongoing controversies over lenient punishments related to securities crimes. In fact, between 2016 and 2020, the average illicit gain per unfair trading case reached 4.6 billion KRW, but the non-prosecution rate was as high as 55.8%. Even when prosecuted, 40.6% were released on probation.

Governor Lee said, "The biggest concern is the lenient punishment for various securities crimes," adding, "The amendment to the Capital Markets Act includes provisions to rationalize and specify the calculation of illicit gains, so I believe that passing the amendment will dispel concerns about lenient punishments."

The main reason the ruling party has put the brakes on the amendment is the 'burden of proof for illicit gains.' The amendment stipulates the method of calculating illicit gains as 'total revenue - total costs - other circumstances such as third-party involvement,' and places the burden of proving these other circumstances on the violators of laws such as stock price manipulation. The strict burden of proof makes it difficult to calculate illicit gains. Many defendants have been acquitted or fined less than 500 million KRW due to prosecutors' failure to prove charges. The purpose of the amendment is to reduce the prosecutors' burden of proof and effectively recover illicit gains.

However, the ruling party pointed out that this provision constitutes a 'shift of the burden of proof,' violating the fundamental principle of criminal procedure law that the prosecutor bears the burden of proof. In response, the ruling party's office in the Legislation and Judiciary Committee stated that since this is a matter of burden of proof, opinions from the courts and the Ministry of Justice should be sufficiently heard and discussed.

The Court Administration Office indicated that there are constitutional concerns regarding the amendment's key provisions, including the method of calculating illicit gains and the increase of fines. The office explained, "There is a possibility that the burden of proof could be interpreted as being shifted to the defendant, which may violate the presumption of innocence," adding, "It is unfair to require defendants to prove illicit gains when even prosecutors and financial authorities find it difficult to specify them accurately, so careful review is necessary." Furthermore, the provision imposing fines up to twice the amount of illicit gains was also flagged as potentially unconstitutional. The Court Administration Office stated, "Excessive monetary sanctions may violate the principles of responsibility and prohibition of excessiveness."

The ruling party also raised concerns about the insider whistleblower incentive system. The amendment allows for mitigation of penalties or fines if perpetrators of unfair trading such as stock price manipulation voluntarily report to financial authorities before the crime is detected. This takes into account the secretive nature of stock price manipulation, which occurs among a very small group. In similar collusion cases, insider whistleblowers also receive reductions in fines. The ruling party opposes this provision, arguing that there is no precedent for it.

Governor Lee said, "Since the concerns about the burden of proof and the shift of the burden of proof are reasonable issues raised by the Court Administration Office and the Legislation and Judiciary Committee, revision work on the amendment should be carried out within the possible scope to alleviate these concerns," adding, "I hope that the Political Affairs Committee, the Legislation and Judiciary Committee, the Ministry of Justice, the Financial Services Commission, and the Financial Supervisory Service will work together to find the right answer for the development of the capital market."

Meanwhile, the likelihood of the amendment to the Capital Markets Act passing at the plenary session of the Legislation and Judiciary Committee on the 29th is currently slim. As a result, it is expected that the timing of the bill's passage cannot be promised. Due to the constitutional concerns raised by the Court Administration Office, passing the bill through the committee is practically difficult. Consequently, the Financial Services Commission is also in a difficult position. Chairman Kim Ju-hyun believes that since the main motivation for stock price manipulation is economic gain, monetary sanctions are necessary to prevent unfair trading in advance. Although several amendments to the Capital Markets Act imposing fines up to twice the amount of illicit gains have been proposed since 2020, they remain pending in the Legislation and Judiciary Committee. The Financial Services Commission intends to continue supporting legislation going forward. A Financial Services Commission official explained, "We are continuing communication with the Court Administration Office and others."

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