South Korea's escalating regulatory accountability for single-stock leveraged ETFs has taken a political and legal turn. The head of the Financial Services Commission, Lee Bok-hyun, and the presidential policy director, Kim Yong-beom, have both been hit with criminal complaints. The accusers allege the two officials were involved in dereliction of duty and abuse of power during the rushed listing of these high-risk products, shifting the controversy from a market dispute into a direct confrontation at the political and judicial levels.
According to reports, former People Power Party Seoul City Council member Lee Jong-bae filed a formal complaint against Kim Yong-beom on August 3rd via the Citizen's Grievance System with the Supreme Prosecutors' Office. The complaint accuses Kim of publicly pressuring regulators and forcibly pushing for the listing of single-stock 2x leveraged ETFs, alleging charges of abuse of power, coercion, and obstruction of business by force. On August 6th, Lee Jong-bae further submitted a complaint against Lee Bok-hyun to the Supreme Prosecutors' Office through the "Citizen's Petition System," accusing him of dereliction of duty and abuse of power that infringed on the exercise of rights.
These complaints target the core of the regulatory decision-making chain. The accuser contends that the products were hastily launched just before the elections, seemingly bypassing necessary risk review procedures like stress tests, which ultimately led to significant investor losses. Lee Bok-hyun had already been previously reported to the police. On the same day, the civic group "Committee for the People's Livelihood Measures" also filed a complaint against Lee Bok-hyun, Kim Yong-beom, President Yoon Suk Yeol, and Financial Supervisory Service head Lee Jae-in with the Seoul Metropolitan Police, widening the scope of the case.
The trigger for this controversy was the official listing of 16 single-stock leveraged and inverse ETFs, based on underlying assets like Samsung Electronics and SK Hynix, on May 27th. The Korean financial authorities approved these products at the time, citing the need to eliminate regulatory asymmetry between domestic and international markets. The listing date conveniently fell just one week before the 9th nationwide simultaneous local elections.
Accuser Lee Jong-bae cited materials submitted by the Financial Services Commission to the office of People Power Party lawmaker Park Sung-hoon. These documents explicitly state that "no stress tests were conducted or commissioned for the single-stock leveraged ETFs." A stress test is a standard analytical method that assumes extreme scenarios, like a stock market crash, to pre-assess the risk and vulnerability of a financial product. It is typically considered a necessary procedure before listing high-risk products.
Lee Jong-bae argues that Lee Bok-hyun likely instructed the business departments and senior officials of the Financial Services Commission not to conduct stress tests. He claims, "If a detailed test had been conducted at the time, it would likely have led to serious risk conclusions, making it difficult to launch the product hastily on the eve of the elections."
In his logic of accountability, Lee Jong-bae has constructed a top-down chain of responsibility. He accuses Kim Yong-beom of publicly pressuring regulators in a media interview in January, questioning, "Why can't it be done domestically when Nasdaq can do it?" and directly instructing financial authorities to proceed with relevant system research. Lee Bok-hyun, as head of the Financial Services Commission, subsequently announced the approval of the products.
Lee Jong-bae asserts, "If Lee Bok-hyun received instructions from Kim Yong-beom to forgo the stress tests, then this constitutes an illegal and improper exercise of authority, amounting to the crime of abuse of power that infringes on the exercise of rights." He has called for Kim Yong-beom to be named as an accomplice in the investigation.
The complaint against Lee Bok-hyun focuses on his alleged failure to uphold the founding purpose of the Financial Services Commission Act, which mandates the protection of investor rights and the stability of the financial market. It accuses him of intentionally omitting necessary review procedures during the launch of the single-stock leveraged ETFs.
It is noteworthy that this is not a single-source complaint. In addition to Lee Jong-bae's complaint through prosecutorial channels, the civic group "Committee for the People's Livelihood Measures" also filed a complaint on August 3rd with the Seoul Metropolitan Police against Lee Bok-hyun, Kim Yong-beom, President Yoon Suk Yeol, and Financial Supervisory Service head Lee Jae-in, on similar charges of abuse of power.
The simultaneous progress of multiple complaints from different entities through various judicial channels means the legal pressure on the involved parties is compounding. Currently, two parallel investigative lines are active—one from the prosecution and one from the police. The outcome of the case awaits the judiciary's subsequent handling. For the market, the controversy over the regulatory compliance of these leveraged ETFs is unlikely to subside in the short term, and the future fate of these related products will continue to attract attention.