The political fallout from recent stock market turmoil deepened Monday, as presidential chief of staff for policy Kim Yong-beom faced a criminal complaint over the rollout of single-stock leveraged exchange-traded funds (ETFs).
Lee Jong-bae, a former Seoul Metropolitan Council member of the main opposition People Power Party (PPP), said he filed a criminal complaint with prosecutors against Kim, accusing him of abuse of authority, coercion and obstruction of business.
Lee alleged that Kim pressured financial regulators to approve the leveraged ETFs, arguing that the government encouraged excessive speculation in the stock market.
"Had it not been for Kim's push, financial regulators would not have rushed to introduce single-stock leveraged ETFs ahead of the local elections despite the significant risks they posed," Lee said.
The complaint came as opposition parties stepped up pressure on the Lee Jae Myung administration over the controversial products tied to Samsung Electronics and SK hynix.
Unlike conventional leveraged ETFs that track broad market indexes such as KOSPI 200 or S&P 500, the funds are tied to either Samsung Electronics or SK hynix and seek to deliver twice the daily return of the underlying stock, magnifying both gains and losses.
Critics argue that the products, introduced on May 27, have amplified volatility in two of Korea's most heavily traded stocks, contributing to sharp swings in the broader market.
On Sunday, PPP floor leader Rep. Jeong Jeom-sig called for a parliamentary investigation into the rollout of the ETFs, saying lawmakers should examine the approval process and whether the government had encouraged excessive speculation.
The minor opposition Reform Party also demanded greater transparency over the approval process, urging the Financial Services Commission (FSC) to disclose internal documents related to the products' introduction.
The mounting scrutiny has put pressure on the Lee government.
The president convened a closed-door meeting with senior aides and Cabinet members late Monday to review developments in the stock and real estate markets, shortly after returning from a trip to South America.
Financial authorities have already moved to tighten regulations in an effort to curb speculative trading.
Since Friday, retail investors seeking to purchase single-stock leveraged ETFs have been required to maintain at least 30 million won ($21,000) in cash deposits. Previously, investors could meet the 10 million won minimum requirement using a combination of cash and eligible securities, including stocks, bonds and ETFs.
Regulators are now considering additional safeguards as concerns over market volatility persist.
The FSC is reviewing amendments to the Capital Markets Act that would allow authorities to temporarily reduce the leverage ratio of the products during periods of extreme market stress without obtaining prior approval from investors.
"The government's misjudgment in introducing these high-risk products has fueled market volatility, affecting even investors who do not own these ETFs," said Kim Dae-jong, a professor of business administration at Sejong University.
"Further safeguards are needed, whether by lowering the leverage ratio or capping the share of investors' assets that can be invested in these products."