FSS warns against firms in flux

For investors seeking a safe bet, the latest advice from a financial watchdog is to avoid companies that experience frequent changes of top shareholders.

The Financial Supervisory Service (FSS) said on Wednesday that 202 listed companies of the 394 surveyed faced delisting, regulatory scrutiny or quarterly net losses after they replaced their largest shareholder. The 394 companies changed their top investors at least once between 2013 and 2015.

“The companies that often change top shareholders tend to be exposed to volatile management leadership,” the FSS said in a statement.

“That makes it hard to manage their businesses in a secure way, increasing the possibility of poor financial status, embezzlement and the misappropriation of corporate funds.”

Of the 202 companies in trouble, 35 were delisted while 68 were put on a watch list. Another 152 suffered net losses and 17 companies engaged in financial irregularities such as embezzlement and breaches of trust.

The number of replacements amounted to 574 in total between 2013 and 2015. The small-cap Kosdaq-listed companies account for 62.7 percent of these cases. In a separate statement, the financial watchdog also warned that people ought to be wary of illegal financial companies that disguise themselves as peer-to-peer (P2P) lending companies.

Backed by the popularity of the relatively new business sector, which directly connects borrowers and lenders through online platforms, these perpetrators normally lure investors by saying that their principal will be secured on top of high yields.

“Authorized financial companies never guarantee full principal if it is a high-yield product,” said Kim Sang-rok, head of the illegal finance response team at the FSS.

“They usually pitch themselves as P2P companies and crowd-funding firms to deceive investors, given that the businesses are new and people are not fully informed of them.”

In the beginning, scammers provide promised yield rates but later close their websites. The FSS said that it saw an increase of reports of such scams going into this year.

One of the detected companies said it offers 15 percent yields while protecting the original amount of the investment, adding that the government backs the principal. But the FSS said the government has no such system.

The regulator recommended investors check the list of P2P companies on this website: www.crowdnet.or.kr.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]