CNK chairman charged in Africa diamond scandal

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CNK chairman charged in Africa diamond scandal

Korea’s financial authorities said yesterday they decided to prosecute the head of a local company at the center of a swirling diamond mine scandal on charges of unfair stock trading.

The Securities & Futures Commission, under the Financial Services Commission, said in a release that it will file charges with the prosecution against two executives of CNK International, including Oh Deok-gyun, the company chairman.

CNK’s stock value skyrocketed after a press release by the Ministry of Foreign Affairs and Trade promoted the firm’s faulty diamond mine deal in Cameroon.

The commission also said it will seek further investigation from law enforcement authorities on six others regarding their suspected assistance or involvement in the case, including Cho Jung-pyo, former vice foreign minister. Cho, who also worked as secretary at the Prime Minister’s Office, has worked as an executive of the company since April 2009.

The commission said Oh led the manipulation of the stock price of the company by exaggerating the estimated size of diamonds buried in the 91 square miles of land in the African nation and made 80.3 billion won ($70.3 million) worth of undue profit from it.

Cho is suspected of providing the exaggerated information about the diamond reserve to the Ministry of Foreign Affairs and Trade and helping make it known to the public in the form of an official release from the ministry. Cho reportedly bought and later sold 260,000 shares in CNK for a profit of 1 billion won.

The Foreign Ministry said in a Dec. 17, 2010 press release that “CNK secured the rights to develop diamond mines in Cameroon where at least 420 million carats of diamonds are estimated to be buried.” According to the financial authorities, 420 million carats would be 2.5 times the total annual amount of diamonds produced globally.

At the time, the ministry said the deal was an exemplary example of cooperation between the government and the private sector in securing business opportunities abroad.

The Lee Myung-bak administration was pushing for resource diplomacy, or diplomacy coordinated with private businesses that focused on securing natural resources deals in resource-rich countries. After the press release came out, CNK’s stock rallied upward over the next several months.

The stock price of the company, which closed at 3,465 won per share on Dec. 16, 2010, surged 4.7 times in only 16 trading days to 16,100 won on Jan. 10, 2011. After that, the Korea Exchange designated the company as a cautionary item for investment.

Ambassador Kim Eun-seok, who is in charge of Korea’s resource diplomacy, led the drafting of the press release from the ministry.

The commission said it confirmed that his younger brother and the brother’s wife also purchased 100 million won worth of stock in the company before the press release was issued but did not include the ambassador in the punitive measures as he is under investigation by the audit board.

The audit authorities, investigating the case since October 2011, have yet to announce the result, and local media have raised suspicions that the wrongdoings go beyond the Foreign Ministry, and officials of other government agencies are also suspected of being involved in the case.

The Chosun Ilbo reported yesterday, citing an unidentified government official, that the audit board has summoned dozens of officials from the Foreign Ministry, the Prime Minister’s Office, the Ministry of Knowledge Economy and the Korea Resources Corporation. The official said most of the people appeared to be summoned with regard to whether they had purchased stock in the company before the company’s diamond mine deal began to be promoted by the Foreign Ministry. The audit board refuted the report.

“As far as we gathered so far, any officials from the Prime Minister’s Office, the Ministry of Knowledge Economy and even former public officials who quit public jobs one or two years ago were not involved in this and have not violated any rules,” a spokesman of the board told the JoongAng Ilbo yesterday.

By Moon Gwang-lip []
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