"Unceasing"... Increase in FSC Investigations After the Ra Deok-yeon Incident [War Against Stock Manipulation]

③-⑶Prosecutor Notifications: 12 Cases in H1 → 19 Cases in H2
Financial Supervisory Service Staff Increased After Ra Deok-yeon Incident
Still Limitations in Detecting Unfair Trade
US SEC Enforcement Division Requests Increase to 1,434 Staff
Japan Securities and Exchange Surveillance Commission Has 160 Investigators
FSS Dedicated Investigators Only 69

The photo is not related to any specific expressions in the article. [Image source=Getty Images Bank]

Since the Ladukyeon incident occurred last April, the number of unfair trading cases reported by the Financial Supervisory Service (FSS) Investigation Bureau to the prosecution or investigative agencies has increased. This means that, separate from the FSS Capital Market Special Judicial Police (Special Judicial Police), cases notified by the Korea Exchange or those investigated independently by the FSS have risen. Despite the arrest of Ladukyeon and his associates, securities crimes continued unabated, which is interpreted as the Korea Exchange and the FSS responding aggressively, resulting in an increase in detected unfair trading cases.

According to monthly data on prosecution referrals and notifications to investigative agencies in 2023 from the FSS Investigation Bureau, exclusively obtained by Asia Economy through the office of Hong Seong-guk, a member of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea, there were 24 cases in the first half (January to June) and 47 cases in the second half (July to December).

Looking at the details, the upward trend is even clearer. Cases referred to prosecution were recorded as 6 in January, 2 in February, 0 in March, 0 in April, 4 in May, 0 in June, 0 in July, 0 in August, 2 in September, 3 in October, 0 in November, and 14 in December. There were 12 cases in the first half and 19 cases in the second half, an increase of 6 cases.

Cases notified to investigative agencies were 1 in January, 5 in February, 1 in March, 1 in April, 2 in May, 2 in June, 3 in July, 7 in August, 2 in September, 6 in October, 3 in November, and 7 in December. This also shows a sharp increase from 12 cases in the first half to 28 cases in the second half, more than doubling.

The increase in unfair trading enforcement actions is interpreted as an effect of increased 'detection.' After the Ladukyeon stock manipulation case (April) and the five stocks hitting the lower limit incident (June), the FSS reorganized its unfair trading investigation team and expanded its personnel. As a result, the dedicated investigation staff increased from 45 to 69.

However, considering that various unfair trading activities continue to evolve and increase, evaluations suggest that both manpower and authority remain insufficient. This contrast is stark when compared to advanced overseas markets.

In the United States, separate from the Securities and Exchange Commission (SEC), which has authority over unfair trading investigations, there is an organization (SEC Enforcement Division) that practically conducts investigations. The number of full-time staff in the SEC Enforcement Division reached 1,325 in 2023 (fiscal year basis). In 2024, they requested an increase to 1,434, citing that the current staff is excessively insufficient relative to the workload.

Japan’s Securities and Exchange Surveillance Commission (SESC) has a total of 389 employees, of which 160 are dedicated to unfair trading investigations. This contrasts with the FSS’s 69 dedicated unfair trading investigation personnel, which includes the special short-selling investigation team.

Editor's NoteIt has been nearly one year (April 24, 2023) since the 'Ladukyeon Gate,' the largest stock manipulation crime in history (with total illicit gains of 730.5 billion KRW), occurred, yet the victims’ nightmare has not ended. There are no effective victim protection 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 attempt it. The amendment to the Capital Markets Act, which supplemented the limitations of criminal punishment and introduced more effective monetary sanctions following the 'Ladukyeon 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 implement additional institutional improvements for swift and strict sanctions. The Asia Economy Securities Capital Market Department’s special investigative team examines advanced overseas capital market systems and reviews the challenges and directions for our market to suppress securities crimes. Furthermore, as intelligent and organized criminal activities occur, we seek effective measures to compensate investors for their damages.

We plan to intensively report from various perspectives on all kinds of unfair trading, including insider trading, fraudulent transactions, market manipulation, and reporting 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 to the end.

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