Paradise for financial criminals

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Paradise for financial criminals

Several people have been charged recently for stock-rigging and propping up prices of securities associated with politicians ahead of the legislative and presidential elections in April and December, respectively. The figures in question purchased certain stocks in bulk to ramp up the price and lure other individual investors to follow suit. They then sold off their shares to pocket huge profits at the expense of small individual investors. Investors were also hit hard from other stock price-rigging schemes that involved high-profile government officials.

Stock price manipulation and insider trading are serious crimes because they can disrupt the order of the country’s capital market. U.S. authorities are extremely strict when cracking down on securities fraud. Former Nasdaq Chairman Bernard Madoff, who operated a Ponzi scheme that yielded the largest-ever investor losses to date, was eventually sentenced to 150 years in prison, while Enron’s chief executive was sentenced to 24 years in prison for corporate fraud.

U.S. courts are particularly unforgiving when it comes to securities and investment fraud. In delivering such a harsh ruling in the Madoff case, the U.S. judge described his fraud as an example of “extraordinary evil” and said he hoped the sentence would deter others from following suit.

Compared with their U.S. counterparts, however, Korean courts offer no more than a slap on the wrist for grave financial and securities crimes. One local court, for example, awarded a suspended sentence to the son of a conglomerate owner for pocketing 16.5 billion won ($14.7 million) through stock-rigging and insider trading. A former senior executive of the Financial Supervisory Service said that stock and financial fraud hardly results in guilty sentences being handed down in Korea. Even if they are, he said, half of the defendants get suspended sentences.

Under such a tolerant system, local bourses can hardly be expected to be free of fraud. Investment fraud is often difficult to detect because it is so scrupulously and intelligently organized. It is a tempting source of easy money for some, and financial crimes are on the rise because criminals have a fair chance of getting off scot-free even if they are found out.

Severe punishment is the only way to root out such crimes. Instead of being slapped with fines and suspended sentences, the guilty must serve long prison terms. We expect our courts to be as strict as their U.S. counterparts when it comes to investment and corporate fraud.
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