"US Fair Fund Returns $930 Million to Victims Last Year" [War on Stock Manipulation]

②-⑸ Necessity of Introducing the 'Korean Version of Fair Fund'
Interview with Professor Park Junseon, Jeju National University Law School
Practical Damage Relief... Laying the Groundwork through Legal Amendments

The U.S. Securities and Exchange Commission (SEC) set aside a total of $6.439 billion as the 'Fair Fund' in the 2022 fiscal year and distributed $937 million to victims. In the following 2023 fiscal year, it set aside $4.949 billion and returned $930 million to victims. This marks two consecutive years of payments exceeding 1 trillion won. The Fair Fund is a fund established to distribute disgorgement or civil penalties recovered from violations of U.S. federal securities laws to investment victims instead of reverting them to the Treasury. South Korea also has a penalty system related to unfair practices in the capital market, but the collected fines are fully reverted to the Treasury and are not used to compensate victims of stock price manipulation. It is now time to discuss the introduction of a 'Korean-style Fair Fund' for effective victim relief.

Professor Park Jun-seon of Jeju National University Law School said in a written interview with Asia Economy on the 19th, "Since the Fair Fund is financed by disgorgement and civil penalties, it can secure responsible assets," adding, "This can help provide substantial relief to victims and also legitimizes the SEC's imposition of civil penalties." Professor Park worked as a legal intern at the SEC in 2009, right after the global financial crisis, while attending law school in the U.S.

Professor Park Jun-seon, Jeju National University Law School

Professor Park recently viewed the amendment of the Capital Markets Act as opening the door to the introduction of a Korean-style Fair Fund system. According to the amendment, which took effect on January 19 this year, the Financial Services Commission established a penalty system for the three major unfair trades (insider trading, market manipulation, and fraudulent trading). Previously, only criminal penalties were possible, but now penalties of up to twice the amount of unjust enrichment or up to 4 billion won can be imposed.

Professor Park said, "In the past, there were no penalty provisions for the three major unfair trading acts, making it difficult to introduce a system like the U.S. Fair Fund. However, the amended Capital Markets Act has established penalties for these unfair trades, so the basic foundation is in place." He added, "While institutional adjustments are needed to harmonize with other civil relief procedures, since the basis for imposing penalties, which are the main source of the Fair Fund, has been established, it is fully possible to introduce it in Korea."

The U.S. SEC actively imposes civil penalties, which are similar to Korea's penalties. The SEC believes that civil penalties should exceed disgorgement to effectively deter unfair trading by depriving illegal economic benefits. For example, in the 2022 fiscal year alone, the SEC imposed $4.2 billion in civil penalties, nearly double the disgorgement amount of $2.2 billion. The potential reward from violating the law is only half the potential risk.

Professor Park emphasized again, "To deter unfair trading in the capital market in advance, it is important to clearly send the message to the market that economic benefits from such acts cannot be enjoyed," adding, "Potential unfair traders must recognize that they cannot gain economic benefits. Only then will illegal acts gradually decrease."

Editor's NoteIt has been almost one year (April 24, 2023) since the 'Ra Deok-yeon Gate,' the largest stock manipulation crime to date with a total disgorgement of 730.5 billion won, occurred, yet the victims' nightmare has not ended. There are no effective victim relief measures in the Korean capital market. Litigation is the only option, but due to cost burdens and difficulties in proving damages, many do not even dare to try. The amendment to the Capital Markets Act, which supplemented the limitations of criminal punishment and introduced highly effective monetary sanctions following the 'Ra Deok-yeon Gate,' is significant. However, to eradicate the continuously increasing securities crimes in various forms, it is necessary to establish a system that can efficiently detect and investigate these crimes and to improve the system further for swift and strict sanctions. The Asia Economy Securities Capital Market Department Special Coverage Team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Additionally, since intelligent and organized criminal acts occur, we seek effective measures to compensate investors for their damages.

We plan to intensively report on various unfair trades such as insider trading, fraudulent trading, market manipulation, and reporting obligation violations from multiple perspectives. We will strive to prepare comprehensive countermeasures to eradicate capital market crimes. Please send tips to lsa@asiae.co.kr. We will investigate and report thoroughly.

▲Team Leader Lee Seon-ae, Manager △Kim Min-young, Hwang Yoon-joo, Cha Min-young, Kim Dae-hyun Reporters

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