Hello, this is Kim Kwang-sik, an attorney at Cheongchul Law Firm.

Sanctions against the three major types of unfair trading in the capital markets — use of undisclosed material information (insider trading), market manipulation, and fraudulent trading — have recently been significantly strengthened. The amended Financial Investment Services and Capital Markets Act (자본시장법, the "Capital Markets Act"), effective January 19, 2024, newly introduced an administrative sanction called a "penalty surcharge" to the regulation of unfair trading, which had previously relied mainly on criminal punishment, allowing a surcharge of up to twice the unfair profit. It further codified directly into the statute the standard for calculating "unfair profit," which had long been contested, enhancing both the predictability and the effectiveness of sanctions.

Against this backdrop, on May 20, 2026, the Supreme Court of Korea reversed and remanded the lower court's judgment in the case of Ra Deok-yeon (라덕연), the ringleader of the so-called "SG (Société Générale)-triggered stock crash," holding that an order using a contract for difference (CFD) — an over-the-counter (OTC) derivative — can also constitute market manipulation. This is regarded as the first ruling to hold that market manipulation using OTC derivatives, which the Capital Markets Act does not expressly designate as a target of punishment, can be punished.

Today, focusing on these two pillars — the legislation strengthening sanctions and the Ra Deok-yeon ruling — I will summarize how the regulation of unfair trading has changed, how unfair profit is calculated and how the surcharge is imposed, how far market manipulation using derivatives such as CFDs can be punished, and what listed companies, investment advisory firms, and investors should check.

[Question] Now that market manipulation can trigger not only criminal punishment but also a surcharge of up to twice the unfair profit, how is that "unfair profit" calculated?

[Answer]

1. What has changed — the three major types of unfair trading and the shifting sanctions landscape

The Capital Markets Act prohibits three representative types of unfair trading. The first is the use of undisclosed material information — trading by using a listed company's undisclosed internal information. The second is market manipulation — artificially altering prices through matched or fictitious trades or through actual transactions. The third is fraudulent trading — a broad category covering the use of unfair means, schemes, or tricks, or making false statements or representations about material matters.

Traditionally, these acts were governed through criminal punishment (imprisonment and fines) and the confiscation and collection of criminal proceeds, but their limitations — difficulty of proof and lengthy processing — were repeatedly pointed out. The amended Capital Markets Act, effective January 19, 2024, fundamentally overhauled the sanctions framework for these three types of unfair trading by introducing a "penalty surcharge" separate from criminal punishment, codifying the standard for calculating unfair profit, and establishing a leniency program for voluntary reporting.

📝 Card-news bottom summary ▶ For the three major types of unfair trading in the capital markets (insider trading, market manipulation, and fraudulent trading), a "penalty surcharge" separate from criminal punishment was introduced from January 2024, and the standard for calculating unfair profit was codified.

2. How is "unfair profit" calculated — codifying the calculation standard

In the past, there was no clear statutory provision on how to calculate the "unfair profit" gained from unfair trading, so disputes over the calculation method were fierce in every case. The amended Capital Markets Act codified the standard for calculating unfair profit directly into the statute. Its core is that unfair profit is defined as "the total revenue arising from transactions carried out through the violation, less the total costs of those transactions."

Unfair profit is both a factor aggravating criminal punishment (the greater the profit, the heavier the statutory penalty) and the basis for calculating the surcharge, so its amount determines the outcome of a case. With the calculation standard codified, a violator's predictability increases, while regulators can apply profit-based sanctions more consistently. However, the scope of total revenue and total costs and the causal link between the violation and the profit remain hotly contested issues in individual cases.

📝 Card-news bottom summary ▶ Unfair profit has been codified as "the total revenue arising from the violation less total costs," and this amount serves as the basis for aggravated criminal punishment and surcharge calculation, determining the outcome of a case.

3. New surcharge of "up to twice" — an administrative sanction alongside criminal punishment

The amended Capital Markets Act allows a surcharge of up to twice the unfair profit for the three major types of unfair trading. If there is no profit from the violation or its scale is difficult to calculate, a surcharge of up to KRW 4 billion may be imposed. This is an administrative sanction separate from criminal punishment, intended to respond swiftly to violations by supplementing the limitations of prolonged criminal proceedings and difficulty of proof.

Indeed, the first case imposing a surcharge equal to twice the unfair profit has already emerged since the amended law took effect, and the supervisory authorities are actively using the system. However, this does not mean unlimited double imposition regardless of criminal punishment. The Capital Markets Act provides mechanisms to revoke the surcharge, or to deduct and adjust an amount equivalent to a fine or collection where a fine has become final for the same violation, so criminal punishment and the surcharge are imposed after an adjustment against double punishment. For this reason, the sequence and coordination of the criminal proceedings and the surcharge proceedings become an important practical issue. Meanwhile, a leniency program that reduces or exempts penalties and surcharges was also introduced for those who voluntarily report a violation or cooperate with the investigation or trial.

📝 Card-news bottom summary ▶ For the three major types of unfair trading, a surcharge of up to twice the unfair profit (capped at KRW 4 billion where profit is hard to calculate) may be imposed in addition to criminal punishment. However, once a fine is finalized it is deducted and adjusted from the surcharge, and a voluntary-report reduction (leniency) was also introduced.

4. The Ra Deok-yeon "SG-triggered stock manipulation" ruling — CFD (OTC derivative) manipulation is also punishable

On May 20, 2026, the Supreme Court reversed the lower court's judgment, which had sentenced Ra Deok-yeon to eight years' imprisonment and other penalties, and remanded the case to the Seoul High Court. Ra Deok-yeon and others were indicted on charges of attracting investment funds from May 2019 to April 2023 to manipulate the prices of eight listed stocks and to gain unfair profit of about KRW 730.5 billion, and the main tool they used was contracts for difference (CFDs). A CFD is an OTC derivative that settles only the price difference without actually holding the underlying stock.

The issue was whether an order using a CFD — an OTC derivative — could be punished as market manipulation, when the objects of market manipulation expressly stipulated by the Capital Markets Act are "listed securities or exchange-traded derivatives." The Supreme Court held that where an OTC derivative (CFD) order, for which trading of listed securities is expected at a substantial rate, leads directly to matched trades and other manipulative orders in listed securities via a securities firm, the crime of violating the Capital Markets Act through market manipulation is established. The fact that the target stocks' low trading volume and market capitalization made manipulation sufficiently feasible even with some time lag between the CFD order and the actual trade also served as a ground. This is regarded as the first ruling to hold that market manipulation using OTC derivatives can be punished, filling a regulatory gap for circumventive and modified market manipulation.

📝 Card-news bottom summary ▶ In May 2026, in the Ra Deok-yeon case, the Supreme Court recognized for the first time that if a CFD order — an OTC derivative — leads to a manipulative order in listed securities, the crime of market manipulation under the Capital Markets Act is established.

5. Establishment of market manipulation and fraudulent trading, and its extension to derivatives

The significance of the Ra Deok-yeon ruling goes beyond the conclusion of a single case: it made clear that the scope of punishable market manipulation is judged by "substance" rather than "means." That is, even an order that is formally an OTC derivative can incur liability for market manipulation despite its circumventive structure, if it is substantively connected to a result that artificially moves the price of listed securities. Coupled with the comprehensiveness of fraudulent trading, this is likely to broaden the possibility of regulating modified unfair trading that uses new financial products and trading techniques.

Ultimately, the regulation of unfair trading is being strengthened simultaneously in three directions: (1) codifying the calculation of unfair profit, (2) newly establishing the powerful administrative sanction of a surcharge of twice the unfair profit, and (3) the expansion of judicial interpretation reaching even circumventive means such as derivatives. Since violations may lead to enormous surcharges on top of criminal punishment, fines, and collection, the economic and legal risks have grown incomparably greater than in the past.

📝 Card-news bottom summary ▶ Punishment for market manipulation is judged by "substance," not "means." Even using a circumventive structure such as derivatives, one may bear liability for unfair trading if the price of listed securities was artificially moved.

6. What listed companies, investment advisory firms, and ordinary investors should check — a summary

First, listed companies and their officers and employees must re-examine their management of undisclosed material information and their insider-trading control systems. Acquisition and disposal of treasury stock and trading by officers and employees around the time of disclosure can always lead to disputes over the use of undisclosed information, so internal controls such as information barriers and prior reporting of trades must be put in order.

Second, investment advisory and asset management firms need to check in advance whether their order execution involves any trades that could be mistaken for matched or fictitious trading or price involvement, and in particular whether strategies using derivatives such as CFDs could be assessed as market manipulation.

Third, ordinary investors must also take care not to become entangled with manipulation groups disguised as stock-tip rooms or investment advisory services, and must guard against situations in which their accounts are used for market manipulation without their knowledge. In sum, the regulation of unfair trading has expanded from a criminal-punishment-centered approach to a dual sanction of "criminal punishment plus surcharge," and to substance-based judgment that includes derivatives. The notion that "if caught, you just pay a small fine" no longer holds, and one should bear in mind that the system is being reorganized so that sanctions exceeding the unfair profit effectively leave "nothing to gain."

📝 Card-news bottom summary ▶ Listed companies should check insider-trading controls; advisory and asset management firms, the legality of price involvement and derivative strategies; and investors, their risk of entanglement in manipulation. Unfair trading is now in the era of the dual "criminal punishment plus surcharge."

Cheongchul Law Firm provides comprehensive legal advice spanning finance and criminal law — from criminal defense related to capital-market unfair trading (insider trading, market manipulation, and fraudulent trading), responses to surcharges and administrative sanctions, disputes over unfair-profit calculation, and responses to Financial Supervisory Service and prosecutorial investigations, to internal-control and compliance advice for listed companies and financial investment businesses. If you need help responding to an unfair-trading investigation or an internal-control review, we recommend systematically analyzing transaction records, information flows, and fund relationships from the earliest stage to design your response.