Investigator Prosecutor Ra Deok-yeon: "The Movie 'Operation' Is Outdated, Evolved into 'Corporate-Type'" [War Against Stock Manipulation]

⑤-⑵ Evolution of Stock Manipulation from 'Kkun' to 'Corporate Type'
Record Number of Prosecutions in 'Corporate Type' Unfair Trading Cases
Need to Expand Investigation Infrastructure, Which Is Less Developed Than Overseas

#Domestic Stock Price Manipulation Crime Reaches 'Record High' Scale. #Stock Price Manipulation Evolving from 'Individual Operators' to 'Corporate-Type'. #Largest Number of Indictments in 'Corporate-Type' Unfair Trading Investigation.

These are all descriptors of the investigation into the 'Ra Deok-yeon Gate' that occurred at the end of April last year. The Ra Deok-yeon case holds great significance both in the history of securities crimes and in investigative terms. There are 56 indicted individuals?the largest number in any stock price manipulation investigation. The illicit gains amount to 730.5 billion KRW, the largest ever for a single market manipulation case. Above all, the manipulation methods have evolved beyond mere organized crime into a 'corporate-type' structure, which is particularly notable.

The Asia Economy special investigative team met directly with prosecutors Park Soo (43, Judicial Research and Training Institute class 39) and Heo Seong-ho (37, 5th Bar Exam) from the Seoul Southern District Prosecutors' Office who participated in the investigation to discuss the significance of the interim investigation results and measures to eradicate unfair trading crimes. The prosecutors' accounts resembled a crime thriller movie. They emphasized a strict deterrent approach to stock price manipulation crimes, warning of 'severe punishment and ruin.'

Seolleung Team and Gongdeok Team Evolve into 'Corporate-Type' Stock Price Manipulation... Movie 'Operation' is Outdated

Movie ＜Operation＞ about stock manipulation 'Kkun'

The most significant feature of the Ra Deok-yeon Gate is that the stock price manipulation gang evolved into a 'corporate-type.' Until now, stock price manipulators were merely 'individual operators' who rented offices for a short period to make a quick profit, much like in the movie 'Operation.' Prosecutor Park emphasized, "The characteristic of this case is not just the large number of participants but that they operated as a corporate-type organization," adding, "The roles of participants were 'divided'." Prosecutor Heo added, "It's not so much a difference in manipulation methods as the structure itself is unique." Heo pointed out, "It developed into a method where funds for market manipulation were collected, and profits were later settled."

Prosecutor Park described the Ra Deok-yeon case as 'organized.' There were already well-known 'trading teams,' 'sales teams' that only attracted investments, 'settlement teams' that calculated profits, and 'VIP management teams' that managed important investors. The core among these was 'mobile trading.' To avoid detection by the Korea Exchange, which monitors abnormal transactions, they opened mobile phones under investors' names and moved near investors' homes and offices while placing buy orders.

"Just as a company is organized into planning, sales, and marketing teams, the Ra Deok-yeon gang had Gongdeok Team, Seolleung Team, Cheongna Team, and Yeouido Team for market manipulation trading. When instructed from above, 'Today, this stock must be bought by the respective team,' the mobile trading team members would go near the investor's home and buy. Naturally, the number of mobile trading team members had to increase. Unlike before when they rented a single office, it was necessary to operate systematically. As the number of investors grew, teams formed, and the organization inevitably expanded." - Prosecutor Park Soo

Prosecutor Park explained, "Because of the mobile trading method, the number of members increased," adding, "To trade so that IP addresses are detected at investors' residences, it was impossible to have just a few participants; a 'trading team' had to be formed."

For this reason, the Seoul Southern District Prosecutors' Office's Joint Investigation Unit for Financial and Securities Crimes is taking Ra Deok-yeon's crimes very seriously. Prosecutor Park said, "Ra Deok-yeon claims he only failed to register as an investment discretionary business but insists he conducted investment discretionary business," criticizing, "Because all members divided roles and committed stock price manipulation acts, the crime is particularly egregious."

Blurred Lines Between Victims and Participants... Prosecutors "Investigation of Former Chairman Kim Ik-rae Ongoing"

Another feature of the Ra Deok-yeon case is the unclear distinction between victims and participants. It is known that even during the financial authorities' investigation before the prosecution's inquiry, this aspect was difficult to ascertain.

When the special investigative team asked how victims and participants are distinguished during the indictment process, they gave a principled response, saying, "The trial is ongoing." Prosecutor Heo elaborated, "When distinguishing investors (victims) from participants, we consider the legal principles regarding conspiracy under the Capital Markets Act and general law, whether they recognized the market manipulation, and whether, even as investors, they shared in the manipulation acts." He explained that decisions are not made uniformly but based on evidence management and legal principles.

Some investment victims hope for indictments on 'fraud' charges against Ra Deok-yeon. When asked about plans regarding this, Prosecutor Park said, "There is an actual complaint filed for fraud, so this is also under review and investigation." He added, "Even if they invested as claimed, if it is revealed they participated in the crime, applying fraud charges is difficult. Of course, the opposite outcome is also possible. This is also under investigation."

Regarding criticism that investigations into Kiwoom Securities and former Dow Kim Group Chairman Kim Ik-rae are delayed, they drew a clear line, stating, "(The investigation) is ongoing." Prosecutor Park said, "Among those who want to shift responsibility, the person who appears to have caused the greatest loss and gained the most benefit is former Chairman Kim," adding, "However, the prosecution investigates everyone as a suspect. It took a year to indict 56 people so far. The investigation into former Chairman Kim is not over."

"Because the scale of market manipulation by the Ra Deok-yeon gang is enormous, the case takes a long time to process, and there are many people and evidence to investigate. This incident basically divides into the part where the stock price was driven up by the Ra Deok-yeon gang and the subsequent crash. So far, investigations have focused on how market manipulation occurred during the price increase, and regarding the crash, if necessary for social suspicion resolution, the process and legal issues must naturally be examined. Ra Deok-yeon claims both before and after the crash, but the current trial concerns the process of driving up the stock price." - Prosecutor Heo Seong-ho

Prosecutor Heo said everyone needs to reconsider the fundamental purpose of the capital market. He emphasized, "Many people think of 'investment and profit' when it comes to the capital and stock markets, but the essence is corporate financing." He explained, "The trustworthiness of the stock market can be an indicator reflecting the trust in the country and economy, but the Ra Deok-yeon incident gave room for evaluation that 'the stock market's trust index is not high' because stock prices were manipulated by a specific group."

Emphasizing 'Severe Punishment' for Unfair Trading Crimes... Need to Expand Investigation Infrastructure and Speed Up Trials

The modernization and sophistication of unfair trading methods are new challenges for the prosecution. Earlier, the Seoul Southern District Prosecutors' Office's Joint Investigation Unit for Financial and Securities Crimes was officially reinstated in May last year. The Virtual Asset Crime Joint Investigation Team, established in July of the same year, handles new crimes arising from the activation of coin distribution.

Seoul Southern District Prosecutors' Office, Yangcheon-gu, Seoul.
Photo by Daehyun Kim kdh@

Prosecutor Heo said, "Besides the Ra Deok-yeon incident, the Youngpoong Paper incident and the five-stock limit-down incident were also handled under the joint investigation unit system," adding, "Since the reestablishment, the number of indictments and amounts of provisional seizure have increased. Past unresolved financial and securities crimes such as the Discovery Fund and Lime Fund incidents are also being promptly resolved under the joint investigation unit system."

Ultimately, the prosecutors agreed that rapid initial response and deployment of investigative capabilities are the solutions to the sophistication of securities and capital market crimes. Prosecutor Park said, "No matter how advanced the criminals' methods are, they can be overcome by the will and capability of the investigation team," adding, "The Ra Deok-yeon organization hurriedly discarded phones or tried to destroy Telegram usage records, but in the rush, they dropped phones."

Prosecutor Heo emphasized, "Ultimately, on-site response is very important. Resolving the case immediately after it occurs reduces confusion in the stock market and quickly prevents the realization of criminal proceeds through sales and disposals." Prosecutor Park said, "In last year's Youngpoong Paper case, close cooperation with the Financial Supervisory Service led to stock trading suspension measures, which prevented additional profit realization by the related gang, marking a significant achievement."

The amendment to the Capital Markets Act was also positively evaluated for its strict punishment stance on unfair trading. According to the revised Capital Markets Act and related enforcement decree, effective from January 19 this year, financial authorities can impose surcharges up to twice the amount of illicit gains for unfair trading acts such as insider trading, market manipulation, and fraudulent trading. If there are no illicit gains or they are difficult to calculate, surcharges can be up to 4 billion KRW. Before the amendment, there was criticism that "even if convicted, large criminal proceeds meant profit."

Prosecutor Park said, "Strengthening punishment and thoroughly confiscating illicit gains can maximize crime prevention effects," adding, "Unfair trading acts must be recognized as absolutely unprofitable and truly 'a very, very, very losing business.'" Prosecutor Heo agreed, "Unlike other violent crimes, capital market crimes are 'planned.' In this process, the loss from punishment must outweigh the gains from the crime to prevent offenses, so I agree with the stance that severe punishment is the best deterrent." In June last year, Prosecutor General Lee Won-seok visited the Korea Exchange for the first time in history and emphasized ruin and severe punishment for unfair trading offenders.

The need for speedy trial procedures was also emphasized. Prosecutor Park said, "Capital market law violators try to delay trials by any means, but the first trial detention period is six months. Because the crime scale is large and methods complex, trials rarely finish within six months," adding, "If trial results come out much later, the punishment level tends to be lower than when the case first became an issue." He added, "Meanwhile, witnesses and evidence may fade. Not only investigations but trials must also be expedited."

Editor's NoteThe 'Ra Deok-yeon Gate,' the largest stock price manipulation crime in history (total illicit gains of 730.5 billion KRW), is approaching its one-year anniversary (April 24, 2023), yet the victims' nightmares have not ended. There are no effective victim remedies in the Korean capital market. Litigation is the only option, but cost burdens and difficulties in proving damages deter attempts. The amendment to the Capital Markets Act, which supplements the limits of criminal punishment and introduces effective financial sanctions due to 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 capable of efficiently detecting and investigating these crimes and to improve additional systems for swift and strict sanctions. The Asia Economy Securities and Capital Markets Department special investigative team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Furthermore, as intelligent and organized criminal acts occur, we seek effective measures for investor damage relief.

We plan to intensively report from various perspectives on all kinds of unfair trading, including insider trading, fraudulent trading, market 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 and report thoroughly.

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