South Korea's Supreme Court has overturned a lower court ruling and sent back for retrial the case of Ra Duck-yeon, 45, head of Hoan Investment Advisory and a key figure in the 2023 stock plunge triggered by Societe Generale (SG) Securities. The decision marks the first ruling that orders using contracts for difference (CFDs), an over-the-counter derivative, can be punished under the Capital Markets Act if used for stock manipulation in anticipation that they will lead to actual trading of listed shares.
The third division of the Supreme Court, with Justice Noh Kyung-pil as the presiding judge, on Thursday overturned a lower court ruling that had sentenced Ra to eight years in prison along with a fine of 145.6 billion won and forfeiture of 181.6 billion won, sending the case back to the Seoul High Court.
The SG Securities-triggered crash refers to an incident on April 24, 2023, when massive sell orders flooded out through SG Securities, causing the share prices of eight stocks to plummet, including Samchully (004690), Seoul City Gas (017390), Sun Kwang (003100), Daesung Holdings (016710), Sebang (004360), DAOU Data (032190), Daol Investment & Securities (030210), and Harim Holdings (003380). Ra and his associates were indicted on charges of accumulating shares in those stocks through CFD accounts in investors' names, then inflating prices through methods such as matched trading — in which buy and sell prices are pre-arranged — to reap 737.7 billion won in illicit profits.
The key issue was whether CFD orders could be punished as stock manipulation under the Capital Markets Act. Ra's side argued that CFDs, as over-the-counter derivatives, are not the listed securities or exchange-traded derivatives to which the manipulation provisions apply. The first trial court found the CFD orders to be guilty as well and sentenced Ra to 25 years in prison, but the appellate court partially accepted his argument and reduced the sentence to eight years.
However, the Supreme Court held that CFD orders can be punishable if they were used for stock manipulation in anticipation that they would pass through a brokerage and lead to actual trading of listed shares. The court also took into account that the targeted stocks had small market capitalizations and were not actively traded, meaning CFD orders alone could affect price formation.
"This is the first ruling to set the standard that matched-trading orders using over-the-counter derivatives and similar instruments can also constitute a violation of the Capital Markets Act through stock manipulation," the Supreme Court said.
