Former US Southern District of New York Prosecutor: "Up to 25 Years Imprisonment Possible per Securities Crime Charge" [War on Stock Manipulation]

⑤-(1) Interview with White-Collar Crime and Litigation Specialist Lawyer
USA Aggregates Sentences for Individual Crimes... Excellent Crime Deterrence
Thorough Forfeiture of Illicit Gains... Korea Faces Practical Difficulties in Restitution

"When criminally prosecuted for securities-related crimes, the judiciary can sentence an individual found guilty to up to 25 years of imprisonment per count."

Christopher D. Frey, Attorney at Latham & Watkins LLP.

Christopher D. Frey, partner at Latham & Watkins LLP, said in a written interview with Asia Economy on the 27th that this is the strongest measure the U.S. has to deter securities-related crimes. He explained, "Individuals sentenced to imprisonment must pay fines, and the judiciary can confiscate illicit gains and require compensation payments to victims."

In South Korea, stock price manipulation can result in imprisonment of up to 15 years depending on the amount involved. In contrast, the U.S. imposes sentences for each individual crime, which can add up to over 100 years of imprisonment, making it effective in deterring securities crimes. The U.S. combines the sentences for multiple charges when sentencing defendants, whereas South Korea does not adopt a cumulative sentencing approach. This is why individuals with a history of unfair trading in Korea often continue stock price manipulation by switching stocks.

Strong Punishments Combining Criminal and Civil Sanctions for Securities Crimes... Effective Deterrence

Frey served as an assistant U.S. attorney at the Southern District of New York (SDNY) for over six and a half years. During his tenure as a prosecutor, he was part of the Securities & Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit, investigating and prosecuting a wide range of complex white-collar issues including violations of the Foreign Corrupt Practices Act (FCPA). He introduced his experience, saying, "As a prosecutor, I handled various white-collar cases including accounting fraud, insider trading, stock price manipulation, complex financial fraud, money laundering, and cybercrime."

From 2014 to 2015, he worked as an attorney in the White House Counsel’s Office during President Barack Obama’s administration and received the John Marshall Award for Outstanding Legal Achievement from the U.S. Department of Justice (DOJ). He currently works at Latham & Watkins LLP as a member of the white-collar crime defense and investigations practice team in the San Francisco office.

The SDNY, where he served, leads investigations into white-collar crimes including stock price manipulation. It is known in the U.S. as the "Wall Street Grim Reaper." Frey said, "The SDNY investigates and prosecutes crimes related to the operation of securities and commodities markets and fraud against individual and institutional investors," adding, "It works closely with the Securities and Exchange Commission (SEC) as well as the Commodity Futures Trading Commission (CFTC)."

The SDNY investigates individuals with power or influence, from CEOs and billionaires to politicians, without hesitation. This is why the SDNY has been at the forefront of rooting out corruption and insider trading. Frey emphasized, "The SDNY strives to earn public trust by acting based on facts and law without bias or external influence. Decisions on whom to investigate and prosecute, and how to handle cases, are made based on facts and law, regardless of politics or partisanship."

White-collar crime cases often involve intense courtroom battles with prosecutors facing lawyers from major law firms. Regarding this, Frey said, "As a federal prosecutor, I would not bring a case unless I believed there was evidence beyond a reasonable doubt to prove the defendant’s guilt before a jury." He added, "Complex white-collar crime cases defended by major law firms can be especially challenging, but we prepare thoroughly at every stage and use the law and all applicable rules to achieve the right outcome."

To eradicate increasingly sophisticated securities crimes, the U.S. judiciary focuses on proving allegations through data analysis. Frey said, "Investigations use subpoenas to obtain bank transactions, business records, and other documentary evidence, as well as information from confidential informants and cooperating witnesses," adding, "Recently, data analytics have been actively used to detect and investigate securities crimes."

Moreover, collaborative investigation systems among related agencies contribute to actively handling financial crimes. He cited the U.S. government’s establishment of a corporate fraud task force during the Enron accounting fraud case, which brought together the DOJ, Treasury, Labor Department, SEC, and other relevant agencies. "Such task forces generally combine the broad talents and experience of investigators, lawyers, accountants, and regulatory experts," he said, "and the dedication of these resources and expertise has proven very effective in addressing corporate fraud."

While the judiciary takes strong legal actions, the SEC imposes civil liabilities on securities crime perpetrators. Frey explained, "The SEC can order individuals through court injunctions to cease violating securities laws and demand civil penalties and disgorgement of all ill-gotten gains," adding, "The SEC can also sanction perpetrators or related securities firms." This includes restricting individuals from serving as directors or officers or limiting related companies from operating as securities firms or investment advisors.

In the U.S., those involved in securities crimes face both criminal sanctions and civil penalties (fines). The processes for proving charges and imposing sanctions are conducted independently. Frey said, "Criminal prosecution does not involve the SEC’s civil actions," and "Likewise, SEC actions generally do not involve criminal prosecutions conducted by the DOJ."

He views the combination of criminal and civil sanctions as effective in preventing securities crimes. Frey said, "The combination of criminal and civil sanctions has helped deter individuals from engaging in securities fraud and strictly punish those involved," advising, "South Korea should model how other countries respond to securities fraud, establish its own legal framework, or seek ways to strengthen sanctions."

U.S. Thoroughly Confiscates Illicit Gains and Distributes to Victims... Korea Lacks Procedures to Compensate Securities Crime Victims

The U.S. thoroughly confiscates illicit gains obtained through crimes. Confiscated funds are distributed back to victims. Frey said, "Asset forfeiture is designed to deprive criminals of crime proceeds and recover funds and property to compensate victims," adding, "After a defendant is found guilty, the court can order forfeiture of specific property, judgment amounts, or substitute assets listed in the indictment at sentencing. The court can also order the defendant to pay compensation to victims of his crimes."

In contrast, South Korea lacks legal and institutional mechanisms to compensate victims during restitution procedures even if they are recognized as fraud victims. Procedures related to recovering criminal proceeds also proceed slowly. It takes considerable time after criminal trials are finalized to return confiscated and preserved criminal proceeds to fraud victims through the 'criminal proceeds restitution' process.

Meanwhile, he emphasized the need to establish legal sanctions for digital assets such as virtual assets. South Korea has yet to prove the securities nature of virtual assets, so there are no legal sanctions for unfair trading occurring in related markets. Frey said, "The global increase in users of virtual assets and other digital assets in the financial system significantly impacts investors, consumers, and businesses, increasing risks of fraud, theft, and money laundering," adding, "The U.S. DOJ has repeatedly stated that strong international law enforcement cooperation is essential to detect, investigate, and prosecute digital asset-related crimes."

He also said, "In international cooperation, the importance of regulation and supervision of jurisdictions with less stringent regulatory standards and enforcement is growing, especially regarding criminals threatening the U.S. and international financial systems."

Finally, Frey said, "The fight against crime cannot be effective without cross-border cooperation," and "Continuous international cooperation and information sharing will play a crucial role in responding to these crimes."

Editor's NoteThe 'Ra Deok-yeon Gate,' the largest stock price manipulation crime in history (with illicit gains totaling 730.5 billion KRW), is approaching its first anniversary (April 24, 2023), yet victims’ nightmares have not ended. There are no effective victim relief measures in the Korean capital market. Litigation is the only option, but cost burdens and difficulties in proving damages deter victims from even attempting it. The amendment to the Capital Markets Act, which introduced highly effective monetary sanctions to complement the limits of criminal punishment 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 additional systems for swift and strict sanctions. Asia Economy’s Securities and Capital Markets Special Reporting Team examines advanced overseas capital market systems and reviews the challenges and directions for our market to deter securities crimes. We also seek effective measures to compensate investors, as intelligent and organized criminal activities continue to occur.

We plan to intensively report from various perspectives on all kinds of unfair trading such as insider trading, fraudulent trading, price manipulation, and reporting violations. We will strive to establish comprehensive countermeasures to eradicate capital market crimes. Please send tips to (lsa@asiae.co.kr). We will investigate thoroughly and report.

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

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