[Exclusive] Second Ra Deok-yeon 'Emerges'... Increased Arrests and Prosecutions by Joint Investigation Team and Special Judicial Police [War on Stock Price Manipulation]

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The number of prosecutions (arrests) by the Seoul Southern District Prosecutors' Office (Southern Prosecutors' Office) and the Financial Supervisory Service's Capital Market Special Judicial Police (Special Judicial Police), who are in charge of investigating unfair trade practices, is on the rise. This means that a 'second Ra Deok-yeon' is rampant. Due to the evolution of stock manipulation techniques, preemptive prevention is practically difficult. There are voices emphasizing that swift and strict investigations are the most important in responding to securities crimes.

On the 21st, Asia Economy exclusively obtained and analyzed data on unfair trade investigations by the Financial Supervisory Service's Special Judicial Police through the office of Hong Seong-guk, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea. The data showed that the number of cases referred to the prosecution by the Special Judicial Police was 8 in 2022, 11 in 2023, and 4 in 2024 (up to February).

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Considering that the 2024 data is only up to February, the number of unfair trade cases referred to the prosecution has increased compared to 2022 and is expected to rise compared to 2023. Among these, the number of cases with prosecution opinions (cases referred to criminal trial by the prosecution) were 3 in 2022 (out of 8 referrals), 8 in 2023 (out of 11 referrals), and 3 in February 2024 (out of 4 referrals).

In particular, in 2022, only 3 out of 8 cases referred to the prosecution had prosecution opinions, but in 2023, 8 out of 11 cases referred had prosecution opinions, which is four times the number of non-prosecution opinions (2 cases). Up to February this year, 3 out of 4 cases referred to the prosecution had prosecution opinions.

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Detection of unfair trade practices in the capital market is conducted through a two-track system involving the Korea Exchange and the Financial Supervisory Service. According to the capital market investigation regulations, the monitoring system for unfair trade such as price manipulation and insider trading follows the stages of 'examination → investigation → prosecution.'

The Financial Supervisory Service's Special Judicial Police is a special organization that conducts 'investigations,' not just 'examinations.' 'Investigation' refers to the procedure of examining criminal cases. Therefore, only the prosecution and judicial police can conduct investigations. The Special Judicial Police currently operate under the direction of the Southern Prosecutors' Office and investigate cases fast-tracked by the Financial Services Commission to the prosecution. Only the prosecution and Special Judicial Police, who have investigative authority, have the power to collect evidence through search and seizure and communication inquiries during the investigation process.

A financial authority official explained, "Due to the nature of unfair trade as a crime, rapid response and strict punishment are the best ways to prevent recurrence rather than preemptive prevention." He added, "Following the Ra Deok-yeon incident last year, a new type of long-term price manipulation using Contracts for Difference (CFD) has emerged, prompting the Southern Prosecutors' Office to strengthen cooperation with the Financial Supervisory Service and other related agencies."

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The Southern Prosecutors' Office, a hub for investigating financial and securities crimes, has also shown remarkable results in investigating unfair trade practices. The 'Joint Investigation Unit for Financial and Securities Crimes (Joint Investigation Unit),' which was abolished in January 2020 and restored in May 2022 (officially institutionalized in May 2023), is believed to have played a significant role. The Joint Investigation Unit is nicknamed the 'Yeouido Grim Reaper' in the financial sector.

According to the Southern Prosecutors' Office, since its revival, over 22 months (from May 2022 to February 2024) , the Joint Investigation Unit has prosecuted 351 individuals related to financial and securities crimes. Among them, 94 were prosecuted under detention. This contrasts with the period when the unit was abolished (January 2020 to April 2022), during which 174 people were prosecuted, and about 46 were detained and prosecuted.

During the same period, the average monthly number of prosecutions increased from 6.2 to 16.0, a 2.6-fold increase. The average monthly number of detentions also rose from 1.6 to 4.3, a 2.7-fold increase. Since the revival of the Joint Investigation Unit, the number of fast-tracked stock manipulation cases has reached 40. During the period when the unit was abolished, fast-tracked cases numbered only 29. Inside and outside the legal community, it is evaluated that 'investigation results for securities crimes have clearly appeared' since the restoration of the Joint Investigation Unit. Consequently, there is a dominant voice that maintaining and strengthening an organizational system dedicated to financial and securities crime cases is necessary to respond to increasingly sophisticated securities crimes.

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

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

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