Lessons from South Korea’s First “Financial Ruin” Stock-Manipulation Case

South Korea’s first high-profile stock-manipulation case under a new joint task force has exposed problems in the investigation itself.

The task force brings together the Financial Services Commission, the Financial Supervisory Service and the Korea Exchange. It was created about a month after President Lee Jae-myung said he would show that anyone “playing games in the stock market” could face financial ruin. At its launch, the group pledged to establish a “one-strike-out” principle in the market.

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I will show that playing games in the stock market leads to financial ruin.

Soon afterward, investigators detected signs of a conspiracy involving wealthy people who operated general hospitals, along with former private-equity executives and other financial professionals. The suspected manipulation involved hundreds of billions of won. The task force froze the suspects’ assets and carried out its first search and seizure operation, leading to what became known as the first “financial ruin” case.

But the operation ran into trouble from the outset. The Financial Supervisory Service has special judicial police officers as well as ordinary employees. Ordinary employees who were not special judicial police joined the task force and took part in executing warrants under the direction of the Financial Services Commission. Investigators also failed to return seized items to the suspects within the legally prescribed period after the searches.

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We will establish a one-strike-out principle in the stock market.