Only 2% of Undisclosed Information Offenders Receive Prison Sentences... Controversy Over Lenient Punishments

9 Out of 10 Receive Suspended Sentences or Fines
Experts Call for Creation of a "Korean SEC"

Recently, it has been found that 9 out of 10 individuals convicted of using undisclosed information under the Capital Markets Act received either fines or suspended sentences. Critics argue that such lenient punishments by the courts are fueling unfair trading practices in the stock market.

On September 16, Asia Economy analyzed 18 first-instance court rulings on crimes involving the use of undisclosed information under the Capital Markets Act, delivered from 2022 to January of this year. Out of 48 defendants, 23 (48%) were sentenced to fines. Another 19 individuals (39.5%) received suspended sentences, while only 1 person (2%) was given an actual prison sentence. Cases still under appeal or further trial were excluded from these statistics.

In particular, courts tended to impose fines or suspended sentences when the defendant was a first-time offender or when the illicit gains had already been recovered. For example, the court sentenced Mr. A to a fine after he received information about a contract award from his older brother, an insider at the company, and bought shares to earn a profit of 100 million won. The court stated, "The defendant has no prior criminal record and is a first-time offender, and the illicit gains have been confiscated, depriving him of any benefit from the violation."

Even in cases where large losses were avoided through the use of undisclosed information, suspended sentences were imposed. Mr. B learned in advance about an embezzlement incident at a subsidiary and sold all his shares before the public disclosure, thereby avoiding losses amounting to 735 million won. Mr. C, Mr. B's younger brother and the CEO of the subsidiary, also sold shares in the same manner, avoiding losses of 470 million won. The court sentenced Mr. B to two years in prison with a four-year suspension and Mr. C to one year in prison with a two-year suspension.

Experts point out structural problems in the current system and a lack of enforcement. Lee Sanghoon, a professor at Kyungpook National University Law School, said, "Even if fines are set at more than three times the illicit gains, the frequent use of suspended sentences and fines shows that the penalties are excessively lenient. In addition, it is difficult to accurately calculate the stock price fluctuations caused by the use of undisclosed information, which sometimes results in a reduction of the actual amount of illicit gains."

Lee Hyoseop, a senior research fellow at the Korea Capital Market Institute, also noted, "It is true that punishments were weak in the past, and even with the introduction of penalties for illicit gains, it is crucial to accurately determine the amount. Since investigations can be prolonged, many cases of unfair trading go undetected. Therefore, it is necessary to establish an integrated organization, similar to the U.S. Securities and Exchange Commission (SEC), so that investigation, prosecution, and indictment can be carried out swiftly within a single body."

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