The current administration has repeatedly expressed its determination to severely punish stock manipulation since taking office. "Stock manipulators" must of course be rooted out. However, if you do not closely examine capital market regulations in the course of mergers and acquisitions (M&A), initial public offerings (IPO), capital increases, and equity sales, even normal corporate activities can be suspected as unfair transactions.
Senior adviser Seo Tae-jong, who heads the Capital Markets Unfair Transaction Response Center (Unfair Transaction Center) at the law firm YulChon, assessed the reality facing corporations during an interview on the 30th at YulChon's office in Samseong-dong, Gangnam-gu, Seoul. Seo said, "From the Financial Supervisory Service investigation to prosecution and police investigations and court trials, corporations need one-stop responses to minimize risk."
YulChon launched the Unfair Transaction Center on the 1st. The center consists of seven teams: the securities unfair transaction investigation response team; the short selling response team; the disclosure response team; the accounting/audit response team; the investigation response team; the criminal trial response team; and the virtual asset unfair transaction investigation response team. It said it has established a response system that covers the entire process from pre-consulting to investigation, prosecution, and trial, not only for the capital market but also for potential violations related to the virtual asset market.
Seo, the center head, is a former bureaucrat in capital market policy and supervision who served as director general of the Capital Markets Bureau at the Financial Services Commission and as a standing commissioner of the Securities and Futures Commission before becoming senior deputy governor of the Financial Supervisory Service. The deputy center head role is held by senior adviser Hwang Jin-ha, who served as the inaugural head of the special judicial police (SJ) for capital markets at the Financial Supervisory Service. Also joining the center are attorney Kim Su-hyun (Judicial Research and Training Institute class 30), with extensive experience in economic and financial investigations; attorney Seo Hyeong-seok (class 32), who specializes in criminal trials in the capital market; and attorney Kim Tae-yeon (class 33), who worked more than 16 years at organizations including the Capital Markets Investigation Department of the Financial Supervisory Service. The center currently has 24 members and plans to expand staffing.
Seo said, "There are not a few corporations that took a lax view, saying an issue was not a problem in the past, and are now facing difficulties." He added, "Had they sought legal advice in advance, they could have removed risks at relatively low expense," and "It is necessary to prepare comprehensively for not only legal liability but also reputational risk to the corporation." The following is a Q&A with Seo and five attorneys from the Unfair Transaction Center.
—The government is showing a very strong will to severely punish stock manipulation. Why launch the Unfair Transaction Center at this time?
Center head Seo Tae-jong said, "The current administration is detecting violations of capital market rules and imposing administrative and judicial sanctions at an unprecedentedly high level. If a corporation does not thoroughly check for possible legal violations in decision-making that involves changes in capital, it can be suspected of unfair transactions and its owner and executives and employees may suffer significant disadvantages."
Attorney Kim Tae-yeon (Kim) said, "Article 178 of the Financial Investment Services and Capital Markets Act, 'Prohibition of unfair trading practices, etc.,' prohibits the use of fraudulent means, schemes, or artifices in the trading of financial investment products, but because the provision is comprehensive, corporations often lack understanding of detailed application. Even in the process of acquiring treasury shares or a tender offer, it is necessary to point out what must not be done to avoid misunderstandings contrary to intent."
—The Unfair Transaction Center brings together people from the Financial Supervisory Service, the prosecution, and the courts. What synergies can you create?
Center head Seo Tae-jong said, "It is not uncommon for the perspectives of the Korea Exchange (KRX), the Financial Supervisory Service, the prosecution, and the courts to differ when determining whether there was an unfair transaction. Those from the Financial Supervisory Service can set the initial response direction focusing on the seeds of suspicion and the frame; those from the prosecution can read the investigation team's legal construction and evidence-gathering strategies; and those from the courts design an argument structure with final victory in mind."
—What advantages does a one-stop legal advisory service that runs through investigation, prosecution, and criminal trial offer to corporations?
Center head Seo Tae-jong said, "In unfair transaction cases, legal representatives are often changed at each stage. In the process, consistency of statements can waver or document management can become lax, which can easily provide grounds for the prosecution to request an arrest warrant or for the court to render a guilty verdict. With one-stop advisory services, you can maintain continuity of defensive logic and strategy from the initial investigation to the final trial."
—What help can you provide so that a corporation's capital market transactions are not suspected as unfair transactions?
Center head Seo Tae-jong said, "We focus on building a 'preemptive and preventive defense system' that blocks the very possibility of unfair suspicion. We explain how a corporation's disclosures or equity transactions are captured by the supervisory authorities' monitoring systems and guide improvements to internal control systems. We also share the latest supervisory and investigative trends from time to time."
—What role does the short selling response team play?
Deputy center head Hwang Jin-ha said, "With the short selling ban lifted, the National Short Selling Detection System (NSDS), which detects naked short selling in real time, is in operation. The problem is that because foreign financial firms trade simultaneously on a global scale, there are cases in which it is difficult to accurately match whether shares were borrowed in Korea within the time difference. In this process, there may be cases where a sale occurs before the borrowing is completed."
Attorney Kim Tae-yeon said, "In many cases, it is a simple mistake by the person in charge. Even so, there are not a few cases in which the penalty surcharge is large and sanctions are excessive. The center will help provide reasonable explanations in such matters."
—What does the disclosure response team do to prevent unfair transactions?
Attorney Kim Tae-yeon said, "There are cases where disclosure is needed even if it is not a formal mandatory disclosure item. Timing and wording can become issues in such cases. Also, there are not a few cases where, within a corporation, a person in charge goes beyond their scope of duties and aggressively engages in promotion, causing disclosure misunderstandings. Prior review from a comprehensive perspective is important."
—Why did you set up a separate virtual asset unfair transaction response team?
Center head Seo Tae-jong said, "The current Act on the Protection of Virtual Asset Users regulates unfair transactions, but if corporate investment in virtual assets is allowed in the future, transaction structures will become far more complex. There is a possibility that behaviors likely to be interpreted as unfair transactions in regulatory blind spots will increase. When the Digital Asset Basic Act is enacted and various virtual asset businesses are incorporated into the institutional framework, it will be necessary to treat this field as a key pillar of the center."
—What unfair transaction issues might a corporation encounter in the process of virtual asset transactions?
Center head Seo Tae-jong said, "Beyond market manipulation, issues may arise regarding the accuracy of information provision; changes to project content due to additional token issuance or swaps; and interpretations of disclosures on issuance volume. Going forward, there will be more cases where a corporation directly holds or transacts virtual assets, or invests in or collaborates with virtual asset service providers. There is a risk of being assessed as joint unfair transactions if you are not careful, so prior review is essential."
—If something similar to Elon Musk's Dogecoin remarks happens in Korea, would it constitute an unfair transaction?
Deputy center head Hwang Jin-ha said, "The key is intent. For an unfair transaction to be established, there must be an 'intent to raise the price.' Mere awareness that 'if I say this, the price may go up' is not enough. In the United States, specific intent and general intent are distinguished, and without specific intent, it is not punishable. It is also hard to see Musk as having intended to drive up the price. However, our legal system's standards for determining intent are somewhat ambiguous."
Attorney Kim Tae-yeon said, "When corporate investment in virtual assets ramps up starting in 2026, risks to corporations, including the issuance of stablecoins, will surface in earnest. In preparation, we are continuously compiling trends in related legal amendments and overseas cases."