South Korea's leniency program for capital markets violations has produced its first case, with an accomplice's self-report triggering an investigation into alleged stock manipulation by a former Daishin Securities employee.
The Seoul Southern District Prosecutors' Office Joint Investigation Unit for Financial and Securities Crimes, led by Chief Prosecutor Shin Dong-hwan, is investigating the case, which was initiated after an insider reported the alleged crimes before any investigation had begun, according to legal sources on June 18.
The case centers on allegations that a former Daishin Securities manager identified as "A" conspired with stock manipulation rings to manipulate share prices of a KOSDAQ-listed company. A is suspected of participating in artificially inflating the stock price from late 2024 to early 2025. The share price reportedly surged from around 1,500 won to 4,000 won following the alleged manipulation.
The leniency system allows reduced or waived criminal penalties for those who voluntarily report unfair trading violations or provide testimony about accomplices' crimes. While widely used in antitrust cartel cases under the Fair Trade Act, it became applicable to capital markets violations—including insider trading and market manipulation—following a January 2024 amendment to the Capital Markets Act.
However, the program remained largely unused due to unclear standards for sentence reductions or immunity.
A previous attempt to apply leniency during the Kakao-SM Entertainment market manipulation investigation fell short when the court noted the witness had recanted testimony.
Legal experts view the Daishin Securities case as the first genuine application of capital markets leniency because the insider directly reported to prosecutors before any investigation began.
Several developments enabled this breakthrough. In November 2024, the Supreme Court Sentencing Commission adopted revised guidelines recognizing capital markets leniency as a special mitigating factor and a key consideration for suspended sentences.
Additionally, the complete removal of caps on whistleblower rewards for unfair trading and accounting fraud reports has strengthened incentives for self-reporting.
President Lee Jae-myung noted on May 25 regarding stock manipulation whistleblower rewards that authorities would "consider reduced punishment and reward payments even for participants," emphasizing the need to encourage voluntary reporting.
Legal experts say increased use of leniency could significantly aid both investigations and prosecutions. Capital markets crimes typically occur secretly between parties, making it difficult to prove market manipulation or insider trading without insider testimony.
"It's been over two years since the capital markets leniency system was introduced, but it hasn't been widely used in practice," said a former prosecutor now working as an attorney. "Once the benefits of self-reporting become clear, the system could take root quickly."
The Joint Investigation Unit requested an arrest warrant on June 18 for accomplice "B," known to be the husband of a prominent influencer. Prosecutors reportedly seized evidence from B's residence indicating his involvement in the flow of funds connected to the manipulation ring.