Presidential policy chief faces criminal complaint over leveraged ETFs
A criminal complaint accuses Kim Yong-beom of pressuring regulators to launch risky leveraged semiconductor ETFs that fueled volatility and investor losses.
Kim Yong-beom, presidential chief of staff for policy, speaks at the Blue House in central Seoul on July 22.NEWS1
2x leveraged ETFs and negative compounding
With a 2x leveraged exchange-traded fund, the price movement is doubled, which can result in losses even if a stock rises and then falls back to the original price.
How does this happen?
If a stock rises in value and then drops back to the original price, the share loses less by percentage as it falls.
For twice-leveraged stocks, however, losses are doubled, meaning that the share price may fall below the original value.
Regular 2x leveraged
Price$100 $100
Rise $130 (+30%) $160 (+60%)
Fall $100 (-23.1%) $86.08 (-46.2%)
Actual returns may differ based on the decimal places used to calculate gains and losses.
Presidential Chief of Staff for Policy Kim Yong-beom was accused in a criminal complaint of abuse of authority, coercion and obstruction of business over the rollout of leveraged exchange-traded funds (ETF) tied to single semiconductor stocks, which have allegedly intensified market volatility and caused billions of dollars in investor losses.
Lee Jong-bae, a conservative former Seoul city council member backed by the opposition People Power Party (PPP), said he filed the criminal complaint against Kim with the Supreme Prosecutors' Office on Monday through the government's online petition system.
Lee argued that Kim effectively instructed financial authorities to consider introducing leveraged ETFs tied to individual chip stocks.
"If they are allowed on the Nasdaq, why shouldn't they be allowed in Korea?" Kim said in an interview in January.
Shortly after the interview, Financial Services Commission (FSC) Chairman Lee Eog-weon announced that regulators would allow the launch of 2x leveraged ETFs, or single-stock ETFs offering twice the daily performance of the underlying shares.
Lee Jong-bae also claimed that the FSC had internally been reviewing a plan since January to establish the necessary regulatory framework and system in the second quarter before launching the products in the second half of the year.
"Had it not been for Kim's directive, financial authorities would not have rushed to introduce leveraged ETFs tied to individual semiconductor stocks just before the election despite warnings of severe risks," complaint plaintiff Lee said. "Investor losses could also have been minimized.”
He also argued that Kim's alleged directive amounted to abuse of authority because it interfered with financial regulators' lawful exercise of their duties.
"If he exerted pressure to force the products' introduction, it would constitute coercion and obstruction of business," Lee Jong-bae said.
"The government ignored warnings from the industry, experts and even its own financial regulator that the products were too risky and rushed to roll them out just before the election. The decision inflicted losses on countless investors and amounts to state-driven stock price manipulation.”
BY SHIN HYE-YEON [lee.soojung1@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
