Doubled penalties for illicit gains in share price manipulation

Penalties, set at twice the amount of unlawful gains, will be levied on profits acquired through unfair trading practices in the capital market, including share price manipulation. Effective Friday, the Revised Capital Market Act introduces punitive measures targeting three key unfair trading practices: market price manipulation, illegal dealing, and undisclosed information. Initially proposed in 2020, the bill has finally been enacted. Timely legislation of this bill would have been instrumental, given the recent incidents of share price rigging that reverberated across the Korean domestic stock exchange market.

The identified major illegal activities in the stock market represent serious offenses capable of disrupting market order. However, regulating them promptly and effectively proved challenging due to the limited options of only jail time or criminal penalties. Criminal charges linked to share price manipulation typically take two to three years to reach a final court verdict, enabling some offenders to further manipulate even during the trial. Under the revised regulations, individuals receiving investigation results from prosecutors are now subject to fines double the profits gained from illicit dealings. If no ascertainable profit is obtained, or if it is not calculable, fines of up to four billion Korean won may be imposed.

The revised bill is particularly significant as it clearly outlines specific methods for calculating illicit gains associated with various forms of unfair dealings. While manipulators have previously faced the possibility of fines or prison sentences for their illicit profits, the lack of clarity in calculating these gains has hindered adequate punishment and confiscation. Consequently, many offenders have served several years in jail, yet continue to lead affluent and comfortable lives due to their unlawfully acquired gains.

Crimes involving share price manipulation have become more sophisticated, with individuals believing that the substantial gains outweigh the risk of imprisonment. The events of 2023, marked by significant incidents such as the share price fluctuation linked to SG Securities and Youngpoong Paper, underscored the vulnerability and lack of preparedness in our stock market. Presently, the market faces disruption from surging share price scams facilitated through social media.

This new punitive penalty measure should serve as a strong deterrent, illustrating that even a single attempt to manipulate stock prices can jeopardize both one's life and career. The Supreme Court's sentencing limit of 15 years for securities-related crimes should be raised. In terms of administrative measures, freezing the bank accounts and blocking the financial transactions of those accused should occur before the final verdict, aligning with practices in other advanced economies. The failure to eradicate such crimes, which undermine the credit of the capital market, will further undervalue Korea's stock market.