Regulatory Storm Over Korean Leveraged ETFs: FSC Chairman and Presidential Policy Chief Face Criminal Complaints

Accountability for the regulatory fallout triggered by South Korea's single-stock leveraged ETFs is intensifying. Lee Eok-yon, Chairman of the Financial Services Commission (FSC), and Kim Yong-beom, Director of the Presidential Policy Office, have successively become subjects of criminal complaints. Complainants allege that both officials engaged in dereliction of duty and abuse of power during the rushed listing of high-risk products, transforming what began as a market dispute into a direct confrontation at political and judicial levels.

According to JoongAng Ilbo, former Seoul Metropolitan Councilor Lee Jong-bae of the People Power Party formally filed a complaint against Kim Yong-beom with the Supreme Prosecutors' Office via the "People's Mailbox" on August 3. The complaint accuses Kim of publicly pressuring regulators, forcibly pushing for the listing of single-stock 2x leveraged ETFs, and being suspected of abuse of power, coercion, and obstruction of business through intimidation. On the 6th, Lee Jong-bae further submitted a complaint to the Supreme Prosecutors' Office via the "People's Petition System," accusing Lee Eok-yon of dereliction of duty and abuse of power obstructing the exercise of rights.

These complaints strike at the core of the regulatory decision-making chain. The complainants argue that the products in question were hastily launched on the eve of elections, and allegedly skipped necessary risk review procedures such as stress tests, ultimately causing substantial losses to a large number of investors. Currently, Lee Eok-yon has also been reported to the police. On the same day, the civic group "Commoners' Livelihood Countermeasures Committee" filed a complaint with the Seoul Metropolitan Police Agency against Lee Eok-yon, Kim Yong-beom, President Lee Jae-myung, and Lee Chan-jin, Governor of the Financial Supervisory Service (FSS). The scope of the incident continues to expand.

Background of Product Listing: Under the Guise of Regulatory Asymmetry, Just Before Elections

The trigger for this turmoil was the official listing on May 27 of 16 single-stock leveraged and inverse ETFs based on underlying assets such as Samsung Electronics and SK Hynix. At the time, South Korean financial authorities approved these products citing the need to eliminate asymmetries between domestic and international regulations. The listing occurred just one week before the 9th nationwide simultaneous local elections.

Citing materials submitted by the FSC to the office of People Power Party lawmaker Park Seong-hoon, complainant Lee Jong-bae pointed out that the documents explicitly stated that "no stress tests were conducted or commissioned for single-stock leveraged ETFs." Stress testing is a standard analytical method used to assess the risk and vulnerability of financial products under hypothetical extreme scenarios, such as a sharp stock price crash. It is generally regarded as a necessary procedure before launching high-risk products.

Lee Jong-bae argued that Lee Eok-yon likely instructed FSC staff and senior management not to conduct stress tests, stating, "If detailed tests had been conducted at the time, they would likely have yielded serious risk conclusions, making it difficult to rush these products to market on the eve of the election."

Chain of Complaints: From the Policy Chief to the FSC Chairman

In terms of logical structure, Lee Jong-bae has constructed a top-down chain of responsibility. He accused Kim Yong-beom of publicly exerting pressure in a media interview in January, asking, "If Nasdaq can do it, why can't we domestically?" and directly instructing financial authorities to advance research on the relevant system. FSC Chairman Lee Eok-yon subsequently announced the approval of these products for listing.

Lee Jong-bae claimed, "If Lee Eok-yon requested no stress tests based on instructions from Kim Yong-beom, this constitutes an illegal and improper exercise of authority, amounting to the crime of abuse of power obstructing the exercise of rights," and demanded that Kim Yong-beom be investigated as an accomplice.

The complaint against Lee Eok-yon emphasizes his failure to fulfill the founding purpose stipulated in Article 1 of the Financial Services Commission Act, which is to protect investor interests and ensure financial market stability. He is accused of intentionally failing to perform necessary review procedures during the launch of single-stock leveraged ETFs.

Notably, these complaints do not stem from a single source. In addition to Lee Jong-bae's submission through prosecutorial channels, the civic group "Commoners' Livelihood Countermeasures Committee" also filed a complaint with the Seoul Metropolitan Police Agency on August 3 against Lee Eok-yon, Kim Yong-beom, President Lee Jae-myung, and FSS Governor Lee Chan-jin. The alleged charges are similarly abuse of power obstructing the exercise of rights.

The simultaneous advancement of multiple complaints through various judicial channels means that legal pressure on the involved parties is mounting. Currently, investigations are proceeding in parallel through both prosecutorial and police channels, and the outcome remains pending further action by judicial authorities. For the market, controversies surrounding the regulatory compliance of these leveraged ETFs are unlikely to subside in the short term, and the future fate of these products will continue to draw close attention.