Swifter raid on stock schemersThe Korea Exchange is the world’s 15th-largest in terms of market capitalization. It achieved the ranking thanks to continuous deregulation. But market oversight failed to keep up with its scale. More than 200 irregular practices were reported last year. One out of 10 listed companies suffered schemes and manipulations. During the election period, the so-called political-themed stocks enjoyed a boon and the market was dominated by rumors. The local bourse is vulnerable and falls prey to schemers from home and abroad, making individual investors the biggest losers.
The government announced measures to stop market manipulation and other abuses in efforts to establish order in the capital market. Under the measures, reporting on stock manipulation cases could be rewarded with as much as 2 billion won ($1.79 million). Those charged with artificially inflating or deflating stock prices will have to pay fines twice as much as their gains. The market was rife with schemers because punitive actions were too soft. About 90 percent of stock fraud-related criminals escaped jail sentences and their fines were tiny compared to their gains. The weak penalties bred irregular investment activities.
The Financial Services Commission will establish a new department bestowed with special “fast track” investigative powers to save time in cracking down on stock crimes. Market manipulation cases usually take a year to prosecute, as they go through the exchange, financial regulator, oversight committee, prosecution and court. In the process, communication records and other evidence goes missing or is destroyed. Suspects prepare for their trial or even flee overseas during the lengthy investigative period. The new measures would give prosecutors dispatched to the commission direct investigative power, shortening the investigative period by three to four months.
Measures are ineffective if they are not put to good use. The Securities and Futures Commission is authorized to have investigative power, but has never used it. Stock crimes are becoming more and more difficult to decipher and catch as they are carried out through smartphones, e-mail and other digital technology. Oversight and measures will also have to evolve accordingly and timely. The court also must meet with heavier punishment.
The stock market is our future capital. Individual assets shift toward the capital market away from real estate in an aging society. Start-ups and mid-sized companies must be powered with solid capital from the bourse. The market must be transparent to breed healthy investment activities. We hope the new measures will help to root out irregularities and unfair activities in the equity market.