Double Recovery of Illicit Gains from Stock Manipulators... FSC to "Enhance Trust in Capital Markets"

Amendment to the Capital Markets Act Passed in National Assembly Plenary Session on the 30th, to Take Effect in 6 Months

On the 30th, the Financial Services Commission announced that it will work to enhance trust in the capital market following the passage of the amendment to the "Capital Market and Financial Investment Services Act" by the National Assembly plenary session, which significantly strengthens sanctions against unfair capital market transactions such as stock price manipulation.

The amendment includes three main provisions: △ the establishment of surcharges, △ the legalization of the method for calculating unjust profits, and △ sanctions reduction for voluntary reporters.

Regarding surcharge sanctions, a new penalty will be introduced to recover up to twice the amount of illegal gains (unjust profits). In cases where there are no unjust profits or calculation is difficult, the amount is set at 4 billion KRW. A Financial Services Commission official stated, “Until now, unfair trading was only subject to criminal punishment, and despite the primary motive being economic gain, there was continuous criticism about the lack of effective sanction measures for this,” adding, “With the introduction of surcharges, swift and effective economic sanctions can be imposed on unfair trading.”

Unjust profits serve as a basis for fines and increased imprisonment, but the current Capital Market Act lacks specific standards for calculating them. Consequently, investigative agencies have faced difficulties proving unjust profits and calculating amounts in unfair trading cases, and disputes over this have frequently occurred during trials. The amendment defines the calculation standard for unjust profits as the difference between total revenue and total costs obtained from the violation (total revenue - total costs). The Financial Services Commission expects that “by presenting clear standards for unjust profits resulting from unfair acts, punishments corresponding to the actual economic gains obtained by offenders can be enforced.”

The amendment also includes provisions allowing for reductions in penalties or surcharges for voluntary reporters or those who testify or provide statements about others’ crimes. Since unfair trading often involves multiple suspects and is conducted secretly and systematically, insider testimony and evidence collection are crucial. The Financial Services Commission stated, “Unfair trading is a serious violation that robs many honest investors and the future of young people and disrupts market order, yet harsh punishments have not been imposed, and the methods have instead become more sophisticated and intelligent,” adding, “With the passage of this amendment, it is expected that a capital market where the general public can invest with confidence will be established.”

The bill is scheduled to take effect in January 2024, six months after the government completes the legal promulgation process. The Financial Services Commission plans to promptly proceed with revising subordinate regulations such as enforcement ordinances in line with the enforcement date. These subordinate regulations will include △ standards and procedures for imposing surcharges, △ specific calculation methods for unjust profits by violation type, and △ standards and procedures for surcharge reductions in cases of voluntary reporting.

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