We Must Stop the Second Ra Deok-yeon... Sleeping Bills [War Against Stock Manipulation]

⑤-(3) Amendment to the Capital Markets Act Including Trading Restriction Measures
Still in 'Jurisdiction Committee Review' Status
Light Punishments with 20% Recidivism Rate in Unfair Trading

Since the 'Ra Deok-yeon Stock Manipulation' incident, bills aimed at eradicating securities crimes by disclosing sanctions on unfair trading practices or including trading restriction measures have been proposed, but they have yet to pass even the review of the relevant committees and remain pending in the National Assembly. These bills have stalled due to intense partisan conflicts, halting policy legislative discussions, and are likely to be discarded with the end of the 21st National Assembly session. Experts have raised their voices emphasizing the urgent need for the passage of related bills to eradicate unfair practices and protect investors.

Stalled Processing of Related Bills

According to the National Assembly Bill Information System on the 29th, the "Partial Amendment to the Act on Capital Market and Financial Investment Business (Capital Market Act)" proposed by Yoon Chang-hyun of the People Power Party in May last year remains under committee review. The core of this bill is to exclude unfair traders from participating in transactions in the capital market. Stock manipulators would be restricted from opening accounts and engaging in any new transactions of all financial investment products within the capital market for up to 10 years. Such trading restrictions have already been introduced and implemented in major foreign countries like the UK. Jeong Soo-min, a research fellow at the Korea Capital Market Institute, explained, "(The trading restriction measure) imposes a disadvantageous disposition that limits transactions in the capital market based on the financial authorities' independent judgment, separate from complaints or notifications from investigative agencies," adding, "It aims to protect investors and prevent repeat offenses of unfair trading."

The unfair trading-related bills that briefly attracted attention after the Ra Deok-yeon stock manipulation incident made some progress in the National Assembly's Political Affairs Committee at the end of last year but ultimately failed to pass due to being overshadowed by contentious bills such as the Act on Honoring Democratic Patriots. Additionally, bills to strengthen penalties on unfair traders, including restrictions on capital market transactions and appointment as executives of listed companies for up to 10 years for insider trading and market manipulation, remain pending in the Political Affairs Committee.

A representative from Yoon Chang-hyun’s office stated, "The amendment to the Capital Market Act is a key bill of Yoon Chang-hyun and has already been reviewed by the Financial Services Commission," adding, "Although it was discussed in depth in the Political Affairs Committee at the end of last year, it remains pending without even passing the committee review due to being overshadowed by the issue of the Act on Honoring Democratic Patriots."

Democratic Party lawmaker Kang Byung-won also introduced a "Capital Market Act amendment" that restricts trading of financial investment products for up to 10 years in cases of stock manipulation and disqualifies executives of listed companies if sentenced to imprisonment or higher, but it remains stalled in committee review. Moreover, Kang recently lost in the primary election for Seoul Eunpyeong District, effectively losing the momentum to push the bill forward.

Need to Strengthen Regulations to Prevent Recidivism

The current level of punishment is significantly low, making it difficult to eradicate repeat offenses of unfair trading in the financial market, thus necessitating stronger regulations to prevent recidivism. In fact, among 274 unfair trading cases submitted and resolved by the Securities and Futures Commission over the past five years (2017?2021), 93.6% were only subject to complaints or notifications without administrative sanctions. Between 2016 and 2020, 55.8% of the cases that were complained about or notified were not prosecuted. Reflecting weak penalties, the recidivism rate for the three major unfair trading offenses exceeded 20% over the past three years. As of 2021, 21 out of 99 offenders attempted repeat offenses.

Jeong Soo-min, research fellow at the Korea Capital Market Institute, said, "Trading restrictions cut off future income that can be obtained through the capital market, reducing incentives to commit unfair trading again," adding, "Since it makes access to the capital market itself difficult for these individuals, the passage of related laws is urgent." He also emphasized the need to specify protections for rights and interests in the law to avoid controversies over infringement of property rights. He stated, "Trading restrictions make it difficult for unfair traders to participate in the market, effectively preventing recurrence, but since it is a long-term sanction rather than a one-time penalty like a 'one-strike-out' rule, there could be constitutional controversies regarding infringement on property rights guaranteed by the Constitution," and suggested, "Considering these points, the currently proposed amendments should be actively discussed, and the scope of trading restrictions and protections for the rights and interests of those subject to measures should be specifically stipulated in the law rather than in enforcement ordinances or notifications."

Editor's NoteIt has been nearly one year (April 24, 2023) since the 'Ra Deok-yeon Gate,' the largest stock manipulation crime in history with a total illicit gain of 730.5 billion KRW, occurred, yet the victims’ nightmares have 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, victims cannot even attempt it. The amendment to the Capital Market Act, which supplements the limitations of criminal punishment and introduces 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 such crimes and to improve additional systems 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. Furthermore, since intelligent and organized criminal acts occur, we seek effective measures to compensate investors for damages.

We plan to intensively report on various unfair trading practices such as insider trading, fraudulent transactions, market manipulation, and reporting 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