Hankook Investment Association Files Compensation Lawsuit Against Financial Services Commission "Liability for Short Selling Policy Negligence"

Hantuyeon Points Out Neglect of Investor Protection Duty
"A System to Detect Naked Short Selling Must Be Established"

The Korea Stock Investors Association (KOSIA), a group representing individual investors, filed a damages lawsuit against the Financial Services Commission (FSC) on the 16th, demanding compensation for losses caused by negligence in short-selling policies.

Jung Eui-jung, the representative of KOSIA, stated, "This claim concerns the financial damages caused by the FSC's delayed response during the short-selling ban process and negligence in issuing the press release on the ban, as well as the mental and physical damages resulting from the failure to fulfill investor protection duties." He added, "The FSC must strengthen investor protection to reduce the enormous property losses suffered by 14 million stock investors, as well as unnecessary social costs arising from protests, assemblies, and complaints. The judiciary should not protect a government that neglects its legally mandated investor protection duties and causes harm to the public."

On the 16th, KOSIA submitted a 17-page complaint to the Seoul Central District Court. KOSIA has argued that when the stock market plummeted due to the COVID-19 crisis around February 2020, the FSC issued a press release banning short-selling for six months across all listed stocks on the KOSPI, KOSDAQ, and KONEX markets but failed to mention the "market maker short-selling exception," which led to an increase in short-selling by market makers.

Representative Jung explained, "During the COVID-19 period, the Minister of Strategy and Finance and the ruling party's floor leader also urged a swift ban on short-selling, but then-FSC Chairman Eun Sung-soo delayed the ban, causing astronomical losses to investors, which clearly reflects the FSC's negligence. The complaint also includes compensation for damages related to the FSC's failure to fulfill the promise made by then-Chairman Choi Jong-gu in May 2018 to establish a naked short-selling monitoring system, which has yet to be implemented."

Furthermore, Jung pointed out issues with the short-selling repayment period and collateral ratio, which may violate Article 11 of the Constitution concerning equality rights. He cited a startling academic paper revealing that due to excessively disadvantageous discrimination against individual investors, short-sellers earn 39 times more profits compared to individuals. He called for the abolition of privileges granted to foreigners and institutions, who account for about 99% of short-selling.

Meanwhile, the complaint submitted to the court is 17 pages long, and the claimed damages amount to a small sum of 1 million KRW.

Regarding this, Representative Jung said, "The purpose is not monetary compensation for damages but a symbolic small-amount damages claim to sound an alarm to the government, which has been negligent in protecting stock investors, and to reduce the widespread harm to individual investors." He added, "Although this is a lawsuit filed in a personal capacity, if we win, the compensation will be deposited to KOSIA and used for public interest purposes."

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