Keep black money out of Kospi

Black money from criminal organizations is funneling into various pockets of society. Capital raised from illegitimate activities such as gambling, bootlegging and prostitution is seeping into legitimate investments in the financial market. Some do it for money-laundering purposes, while others do it because their funds have grown too big to keep in a personal safe.

The most popular way to disguise the true identity of the money is to purchase real estate and then rent it out. But it has also begun seeping into the stock market. Organized crime rings have even joined up with market informants to manipulate stock prices. Smaller stocks on the Kosdaq have now become their predatory targets. Companies that profit from scams even get listed on the broader bourse.

Dasan Real Estate Investment Trust is a case in point. It was licensed by the Ministry of Land, Transport and Maritime Affairs in April 2008 as a company that uses employees’ funds to invest in, and manage, real estate.

After the company failed to go public, the founder teamed up with a businessman with the surname Cho, despite the fact that Cho used to run an underground crime ring. As soon as Cho earned the more salubrious title of vice chairman, he raised funds worth 17.9 billion won ($16.5 million) from the shadow economy.

He also raised 15 billion won in rights offerings after raising the prosect of renting out an office building worth 27 billion won in Haeundae, Busan. The company became the second self-sufficient real estate investment trust to go public on the Kospi.

The company became a mess as soon as it listed, with its executives treating themselves to heavy bonuses. The gangs that had lent their illicit gains began harassing Cho to repay them at extortionate levels of interest.

The lending group included a singer, a comedian, a former pro baseball player and a room salon owner. Under the threat of retribution from the underworld, Cho recklessly issued corporate notes and was subsequently caught by the financial authorities. The company was delisted after just nine months, setting a new record on the bourse. Some 297 investors who had participated in the rights offering lost everything.

Now our financial authorities must thoroughly investigate how such scams can still take place on the Kospi. They must examine any signs of loopholes in the screening process of applicants wishing to list to make sure that no such fraudulent practices occur again in this country.