Cheong Wa Dae policy chief Kim Yong-beom filed against over leveraged ETF directive

Kim Yong-beom, Cheong Wa Dae's policy chief, has been criminally reported to prosecutors over his alleged role in pushing through the introduction of single-stock leveraged ETFs, a product widely blamed for fueling sharp swings in the domestic stock market.

Lee Jong-bae, a former Seoul Metropolitan Council member, said Monday he filed a complaint against Kim with the Supreme Prosecutors' Office through the National Sinmungo public petition system, alleging abuse of authority, coercion and obstruction of business through the use of force.

"Had it not been for Director Kim's directive, the financial authorities would not have hastily introduced single-stock leveraged ETFs — products whose severe side effects were foreseeable — just before the election, and investor damage could have been minimized," Lee said in a statement. "The fact that Director Kim ordered the introduction of single-stock leveraged ETFs despite the Financial Services Commission warning of the risks constitutes abuse of authority that interfered with the financial authorities' exercise of their rights. If he applied external pressure to force the introduction, that amounts to coercion and obstruction of business through the use of force. On those grounds, I am filing a criminal complaint against Director Kim on charges of abuse of authority, coercion and obstruction of business."

Lee said industry participants and experts had broadly agreed from the outset that the products should be introduced in the second half of the year, or only after sufficient simulation testing to ensure a stable market entry. He said they had warned that single-stock leveraged ETFs could trigger a "negative compounding effect" during share price declines and generate large volumes of forced liquidations, amplifying index-wide losses. "Unlike the US market, which has dozens of blue-chip big-tech companies across diverse sectors, Korea's stock market has liquidity concentrated in a handful of large-cap names such as Samsung Electronics and SK Hynix," Lee said. "There were concerns that introducing single-stock leveraged ETFs in such a market would only send share prices on a roller coaster ride, regardless of corporate fundamentals."

"Despite warnings from both the industry and experts, and even the FSC flagging the risks, hastily introducing single-stock leveraged ETFs just before an election — and producing countless victims as a result — amounts to horrific market manipulation carried out by the state and an unprecedented abuse of power," Lee said.

Kim had signaled his push for the products in a January interview with the Hankyoreh, asking, "Why can't we do in Korea what is possible on NASDAQ?" He was subsequently understood to have directed a review of single-stock leveraged ETF introduction. According to cabinet and vice-ministerial meeting minutes, a related enforcement decree amendment cleared the vice-ministerial meeting on April 17 and the cabinet meeting on April 21. Samsung Electronics and SK Hynix leveraged ETF products launched on May 27, just before the June 3 local elections.

Financial Supervisory Service Governor Lee Chan-jin said at a regular press briefing on June 22 that the introduction of the Samsung Electronics and SK Hynix single-stock leveraged ETFs had indeed been rushed. "They are simply fattening the wallets of securities firms through extreme turnover rates," he said. "I am personally reflecting on whether I should have blocked the acceptance of the securities registration statements by any means necessary, and I have many regrets."