Gov't signals zero tolerance for stock manipulation

A stock manipulation scheme involving about 100 billion won, orchestrated by wealthy individuals operating general hospitals, Korean medicine clinics, and large private academies, as well as current and former financial executives, has been uncovered by South Korean financial authorities. The case marks the first major case handled by the Joint Task Force on Stock Manipulation, launched in late July following President Lee Jae-myung’s warning that “those who manipulate stocks will be ruined.” The task force said it would impose fines up to twice the amount of illegal gains, restrict trading in financial investment products, and bar executive appointments, making an example of its so-called “one-strike-out” policy to immediately expel stock manipulators from the capital market.

The manipulators, composed of wealthy individuals and financial experts, mobilized about 100 billion won in corporate funds and loans to place nearly daily manipulative orders on a single KOSPI stock for a year and nine months, beginning early last year. They targeted low-volume stocks with management dispute issues. They executed tens of thousands of “wash trades,” in which two or more colluding parties buy and sell shares, and “matched orders,” where one person simultaneously places buy and sell orders, inflating the stock price twofold. To evade regulatory surveillance, they spread trades across dozens of accounts and even manipulated internet protocol (IP) addresses. The illegal gains from the inflated stock prices amounted to 40 billion won.

Historically, stock manipulation in South Korea has been regarded as a “profitable crime” because of weak oversight and light penalties. Although about 100 cases of unfair trading occur annually, few result in prosecution, and even when they do, prison sentences exceeding three years are uncommon. Ambiguous methods for calculating illegal gains have also hindered authorities from fully recovering criminal proceeds. As a result, the recidivism rate for stock manipulation reached 29.2% over three years starting in 2021.

Stock manipulation is a serious crime that undermines the foundations of financial markets and is even called “economic murder” in the United States. Temporary threats or warnings alone are not enough to eradicate it. Thorough monitoring and strict sanctions must continue until unfair practices are fully eradicated from the stock market. Strengthening financial authorities’ surveillance capabilities is also critical to counter increasingly sophisticated schemes. With 14 million individual investors watching, the market will see whether those who manipulate stocks truly face ruin.