Lee Jae-myung's Leveraged ETF Blunder

The Decree Problem

President Lee Jae-myung told a September 18 press conference that he does not know who authorized the single-stock leveraged ETF program that has already cost Korean retail investors 54 billion won — roughly $38 million. His exact words were apt: “Someone must have made the decision. I cannot grasp the detailed procedures.”

The problem is that the ETFs were not authorized by a committee vote, a regulator’s ruling, or a ministry circular. They were authorized by presidential decree — a direct executive order issued under constitutional authority and published in the government gazette. The decree was listed explicitly as a “presidential reporting task” (대통령 업무보고 과제) in materials released by the Financial Services Commission.

In plain terms: the product Lee now says he does not understand was designed to be approved by him, or at least under his direct oversight, and it went into effect after passing through the State Council on April 21.

Who Chaired the Meeting

The April 21 State Council session that approved the decree amendment was presided over by then-Prime Minister Kim Min-seok, who is now the leader of the ruling Democratic Party. That detail matters for two reasons.

First, it means the highest-level executive body in South Korea — the cabinet — formally debated and approved a financial product that would expose ordinary investors to amplified leveraged risk in a single stock. Second, Kim now occupies a central political role in the same party as Lee, which raises uncomfortable questions about internal communications and institutional memory that a president can plausibly deny.

The amendment was gazetted on April 28. Within months, retail investors who had been buying Samsung Electronics and SK Hynix leveraged ETFs on overseas exchanges — primarily in the United States and Hong Kong — began facing severe losses as the Korean versions absorbed the same concentrated risk with magnified volatility. The 54 billion won figure is almost certainly conservative; loss calculations for leveraged products are notoriously disputed.

The “Reporting Task” That Was Not Reported

Perhaps the most damning element in the public record is the FSC’s own documentation. The commission’s press release described the single-stock leveraged ETF initiative as a “system improvement for strengthening the competitiveness and healthy growth of the domestic ETF market.” It was tagged as a presidential reporting task.

A presidential reporting task is not a passive file on a desk. It is an item for which the president is expected to receive a formal briefing, render a judgment, and sign off — or explicitly decline. The FSC does not publish this tag without purpose. It signals that the executive branch intended the president to own the policy.

Lee’s claim that he was merely “reported to” on the matter and found the rationale — that letting domestic investors buy these products at home was more convenient than forcing them offshore — “principally correct” is technically defensible. It is also politically catastrophic.

He is arguing, in effect, that he approved the broad direction without understanding the mechanism, the timing, or the risk profile. That distinction will not survive scrutiny from a special prosecutor.

The Opposition’s Response

Jeong Kap-sik, the People Power Party’s floor leader, responded swiftly. He called Lee’s remarks “literally dissociative” and said the president was attempting to offload responsibility for a policy enacted by his own office. Jeong announced that his party would push forward a special prosecutor law to investigate the ETF program.

A special prosecutor in South Korea is not a routine investigative tool. It is typically deployed for high-profile scandals involving government officials, requiring legislative action and prosecutorial appointment. Its introduction signals that the opposition views this as a matter of institutional accountability, not merely political damage control.

The 54 billion won loss figure gives the opposition a concrete anchor. In Korean politics, retail investor harm carries enormous symbolic weight. Voters who lost money on leveraged products are not abstract stakeholders — they are citizens who may have been encouraged by the very framing of the policy as a market competitiveness initiative.

Why This Matters Beyond Korea

The single-stock leveraged ETF program sits at the intersection of three structural problems that extend well beyond South Korea.

First, it reveals how easily financial product innovation can be accelerated through executive channels when legislative oversight is weak. Presidential decrees bypass parliamentary debate entirely. In a system where the State Council meets infrequently and the prime minister chairs it in this case on a matter of market regulation the check on executive financial authority is thinner than it appears.

Second, the incident exposes a gap in investor protection that is familiar across East Asian markets. Retail investors in Japan, Taiwan, and China have faced similar leveraged product risks, often marketed under the banner of “market development” and “global competitiveness.” The naming convention is never accidental.

Third, and most immediately, the political fallout tests the cohesion of the Democratic Party itself. Kim Min-seok, the former prime minister who chaired the meeting, now shares a party with Lee. If the special prosecutor moves forward, Kim’s role in the April 21 session becomes a focal point. A ruling party leader who simultaneously serves as former prime minister and meeting chair is an unusual configuration — one that complicates any clean separation between policy approval and presidential knowledge.

What Happens Next

Three trajectories are plausible.

The first, and most likely in the near term, is legislative maneuvering. The People Power Party will push the special prosecutor bill through the National Assembly. Whether it passes depends on the balance of seats and the willingness of defecting Democratic Party members to break ranks. The loss figure of 54 billion won gives allies enough moral leverage to force a vote even if party discipline holds.

The second trajectory is regulatory clarification. The FSC may attempt to reframe the entire episode as a bureaucratic miscommunication — that the “presidential reporting task” tag was administrative boilerplate rather than an invitation for direct presidential action. That explanation will satisfy no one who has read the gazette.

The third trajectory is the one Lee’s team should fear most: a detailed investigative timeline showing that the president was briefed repeatedly on the ETF program, received documents, signed off on the decree, and only later distanced himself when losses mounted. If that timeline emerges, the “someone else decided” defense collapses into what could be characterized as deliberate obfuscation.

South Korea’s financial regulators have long struggled with the tension between market innovation and investor protection. This episode is not just a policy failure. It is a constitutional one — a case where the executive branch used its most direct legal instrument to enact a financial product, then disavowed the act when the consequences became visible.

How the special prosecutor handles that question will define not only Lee’s presidency but the boundaries of executive financial authority in East Asia.