[Exclusive] Prosecution Reviews Indictment Changes for La Deok-yeon and Others in 'SG Incident'... Illicit Gains Expected to Be Significantly Reduced

Error Identified During Trial Process, Unjust Enrichment Recalculated

The prosecution is reviewing changes to the indictments of defendants in the so-called 'Soci?t? G?n?rale (SG)-related stock manipulation scandal,' which is currently undergoing first trial proceedings. When the case was indicted in May last year, the prosecution stated that the amount of illicit gains was 730.5 billion won, calling it the 'largest stock manipulation crime in history.' However, errors related to this were identified during the trial process. As this reveals flaws in the investigation of financial and securities crimes that require precision, criticism is expected, and the amount of illicit gains is likely to be significantly reduced during the reassessment process.

According to the legal community on the 21st, the Joint Investigation Unit for Financial and Securities Crimes at the Seoul Southern District Prosecutors' Office (Chief Prosecutor Gong Jun-hyeok) is preparing to change the indictment to revise the amount of illicit gains related to the violation of the Capital Markets Act applied to key defendants, including Ra Deok-yeon, a central figure in the SG scandal. This change comes about one year and three months after the indictment, while the first trial has been ongoing for over a year. The court has requested the prosecution to submit an application for permission to amend the indictment by the end of this month at the earliest, or by next month at the latest.

The court pointed out two major issues. First, there is a significant discrepancy between the list of criminals the prosecution stated in the indictment as having participated in market manipulation and the list of investors in Ra's organization secured during the prosecution's investigation. The other issue is that the illicit gains calculated by the prosecution include profits of simple investors who are not criminals. Judge Jeong Do-seong, presiding over the case at the Seoul Southern District Court Criminal Division 11, stated, "Existing precedents require excluding investor profits from market manipulation illicit gains," and added, "There is no record that the prosecution considered this in their calculation method, which is a fundamental problem."

Ra's defense team argues that many 'suspicious accounts' that Ra's organization was not involved with at all are included in the list of alleged accounts the prosecution claims participated in market manipulation. They emphasize that information about the investment items may have leaked to the surroundings, and investors might have independently operated accounts unrelated to Ra's organization. Ra's side appeals that including the investments of such accounts in the illicit gains has excessively inflated the amount of illicit gains.

However, the SG scandal involved crimes committed over about four years and many related parties, making it practically impossible in the early stages of the investigation to accurately distinguish between 'accomplice' and 'investor' accounts. Singer Lim Chang-jung is a representative example. A Financial Supervisory Service employee responsible for classifying alleged accounts and analyzing trades at the beginning of the scandal testified as a witness at the trial on the 19th, saying, "We identified alleged accounts based on known organization members, related corporate settlement accounts, and physical evidence seized from Gangnam," but also stated, "We had no information on who was an investor and who was an accomplice, and while handling hundreds of accounts and enormous data in a short period, human errors might have occurred, including some accounts that should not have been included."

There is also room for dispute regarding the fact that external factors were not considered at all in calculating the stock price increases of the eight stocks used to estimate illicit gains. During the total four-year crime period, domestic and international factors such as the COVID-19 pandemic and the Ukraine-Russia war could have influenced price fluctuations independently of the criminal acts. The revised Enforcement Decree of the Capital Markets Act, enacted in January, includes provisions requiring consideration of such external factors when calculating illicit gains.

However, the Financial Supervisory Service employee testified, "We basically reviewed all disclosure contents of the eight stocks involved in the crime," and added, "We judged that there were no external factors that offset the price increases beyond the market manipulation acts, so there was nothing to consider in the calculation of illicit gains."