Amendment to Capital Markets Act Implemented Early This Year
Financial Authorities Conducting 222 Investigations
"Numerous Issues of Unfair Gains Expected"
Experts Recruitment and Organizational Restructuring Underway
With the enforcement of the amended Capital Markets and Financial Investment Services Act earlier this year, which added provisions for imposing fines on the three major unfair trading practices?insider trading, market manipulation, and fraudulent trading?to prevent incidents like last year's SG Securities-driven stock price crash, it is expected that fines imposed on profits gained from unfair trading will significantly increase as early as the end of this year. Currently, financial authorities are investigating 222 cases, and major law firms are responding by recruiting experts and establishing dedicated teams.
On the 24th of last month, the Financial Services Commission and the Financial Supervisory Service held a meeting of the 'Unfair Trading Investigation and Hearing Agency Council (Josimhyeop)' with the prosecution and Korea Exchange to discuss related issues. Josimhyeop is a consultative body that shares and cooperates on the status and issues of each agency’s response to unfair trading, aiming to establish an organic and efficient response system involving △detection and hearing (Exchange) △investigation (Financial Services Commission and Financial Supervisory Service) △prosecution (Prosecution).
The amended Capital Markets Act, effective from January 19 this year, includes strengthened penalties for unfair trading. First, a system for imposing fines proportional to unjust profits was introduced, allowing fines up to twice the amount of unjust profits. Previously, criminal punishment for unfair trading actors took a long time, and monetary penalties were insufficient, but with the amendment, sanctions can be imposed even at the investigation stage. In principle, financial authorities can impose fines after receiving investigation results, but exceptionally, fines can be imposed before results are notified if there is consultation with the prosecution or if one year has passed since the case.
Additionally, a voluntary reporting reduction system was introduced, allowing for reduced fines if violations are voluntarily reported or if testimony is given about others' crimes during investigation or trial.
Another important aspect is that the method for calculating unjust profits is now stipulated by law. Before the amendment, calculations were made based on internal standards of financial authorities, which was criticized as violating the principle of legality, but the amendment established clear criteria. Going forward, many cases are expected to shift from criminal punishment to fines imposed by financial authorities.
According to financial authorities, as of the end of May, 222 unfair trading investigations are underway. The number of investigations and prosecutions by investigative agencies is expected to increase.
Attorney Choi Jong-yeol said, “Cases involving large fines may frequently occur, and sentencing for criminal punishment will be further strengthened. Numerous issues related to the appropriateness of unjust profit calculations will arise.”
Attorney Heo In-seok explained, “With strengthened sanctions, both companies and individuals now require professional legal advice. Especially for companies, strengthening internal control systems, employee training, and preparing rapid response manuals will become more important.”
Major law firms are responding by recruiting experts from related agencies such as the Financial Services Commission, Financial Supervisory Service, and Korea Exchange, as well as prosecutors and judges with extensive experience handling financial securities crimes and capital markets law cases, and forming dedicated teams.
Kim & Chang Law Office handles related cases through its Securities Unfair Trading Team. The team includes Attorney Kwon Ik-hwan, former Chief Prosecutor of Seoul Southern District Prosecutors' Office, and Kim Young-cheol, a senior advisor and former Director of the Capital Markets Investigation Bureau at the Financial Supervisory Service.
Lee & Ko has established a Capital Markets General Center for response, staffed by Attorney Kwon Tae-kyung, former Deputy Director of the Special Investigation Bureau at the Financial Supervisory Service, Attorney Kim Hyung-geun, who was in charge of launching the Joint Investigation Team for Securities Financial Crimes, and Attorney Kwon Soon-geon, who handled related cases at the Seoul Central District Court.
Bae, Kim & Lee established a Fair Trade Criminal Response Center early last year following the formation of the Financial Securities Crime Investigation Response Team in May 2022. The team includes Attorney Kim Beom-gi, who led investigations at the Securities Crime Joint Investigation Team at Seoul Southern District Prosecutors' Office, Attorney Jung Soo-bong, a former member of the Securities Crime Joint Investigation Team, and Lee Dong-yeop, former Deputy Governor of the Financial Supervisory Service.
Yulchon LLC operates a Financial Asset Regulation and Investigation Response Center. The center is led by Attorney Kim Hak-seok, who authored the prosecution’s internal investigation training material “Financial Regulation Investigation Practice” and currently serves as president of the Financial Law Association. Other members include Attorney Kim Soo-hyun, former legal advisor to the Financial Services Commission, and Attorney Kim Rak-hyun, former head of the Financial Investigation Division 2 at the Southern District Prosecutors' Office.
Shin & Kim Law Firm operates a Financial Securities Crime Investigation Response Center. The team includes Attorney Lee Jeong-hwan, formerly of the Financial Tax Investigation Division at Seoul Central District Prosecutors' Office, Attorney Jung Kwang-byung, who worked at the Financial Investigation Division of Seoul Southern District Prosecutors' Office, and Attorney Hwang Hyun-il, who served at the Capital Markets Investigation Unit of the Financial Services Commission.
HwaWoo Law Firm’s Financial and Securities Investigation Response Task Force is staffed by Attorneys Heo Hwan-jun, Jeong Hyun-seok, and Lee Ju-yong, all former Financial Supervisory Service officials, former Financial Services Commission Chairman Choi Jong-gu, and Attorney Kim Young-gi, former head of the Securities Crime Joint Investigation Team.
Jipyong LLC operates a Financial Securities Criminal Response Center and Financial Regulation Team. The center includes Attorney Park Jeong-sik, former Chief Prosecutor of Seoul High Prosecutors' Office, Choi Se-hoon, former head of the Special Investigation Division at Busan District Prosecutors' Office, Park Seung-dae, former Deputy Chief Prosecutor of Seoul Southern District Prosecutors' Office, and Attorney Yoon Young-gyu, a former Financial Supervisory Service official.
Daeryuk Aju Law Firm’s Capital Markets Response Team, led by Attorney Min Ki-ho, includes senior advisor Ahn Woong-hwan, a former Financial Supervisory Service official, and Attorney Jeong Ui-seon.
Dongin Law Firm’s Capital Markets Law Specialist Team includes former Southern District Court Judge Lee Hwan-seung and Attorney Heo In-seok.
Han Su-hyun, Legal Times Reporter
※This article is based on content supplied by Law Times.
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