14 fined for Hanmi insider trade

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14 fined for Hanmi insider trade

Korea’s financial regulator fined employees of Hanmi Pharmaceutical and other investors 2.4 billion won ($2.1 million) on Wednesday for insider trading last September, but stopped short of holding other major suspected parties, including short sellers, accountable.

The Financial Services Commission said it would impose fines on 14 people, including Hanmi employees and retail investors who traded using undisclosed information from the insiders. The investors, mostly friends and family members of Hanmi workers, were able to avoid potential losses with the information they had.

The investigation, however, failed to capture a massive circle of short sellers, including institutional investors, who were accused of engaging in unfair trading. They were said to have been the primary force that dumped around 50,000 shares within 28 minutes of the market opening, just before the pharmaceutical company announced it would terminate a contract with German drug maker Boehringer Ingelheim on Sept. 30 last year.

The massive selling before the termination announcement seemed unusual since Hanmi just a day before had unveiled a $910 million contract with Genentech to license a separate anticancer treatment.

The regulator said that the Securities & Futures Commission, the group within the Financial Services Commission in charge of the investigation, was unable to find concrete evidence of the short sellers’ use of non-public information, though the sequence of events backed the allegation.

“We acknowledge that many securities companies and fund managers are involved in the short sales of Hanmi, and the circumstances indicate that they could have been able to take advantage of insider knowledge about the deal,” said Yoo Jae-hun, head of the capital market supervision team at the Financial Services Commission. “But we couldn’t obtain clear physical evidence about the suspicion since the information disseminated so rapidly and on a large scale.”

The Securities & Futures Commission found two new suspects during their investigation and referred them to the prosecution on Wednesday.

The prosecution initially reported in December that there were 27 people suspected of committing insider trading, but 11 were exempt from the penalty due to the relatively small size of profits they took. The other two were cleared of the charge.

The Hanmi scandal was a high-profile case that prompted financial authorities to devise stronger regulations on short selling and insider trading. In March, the Financial Services Commission began disclosing stocks that experience a heavy influx of short sales and suffer steep falls after the market closes, and then suspending the stocks’ trading the next day. The efficacy of the measure though has been questioned because only the overheated shares - not the entities behind the short sales - are revealed.

The regulator will also ban short sellers from buying new securities on a secondary offering if they placed a short position on the stock during the offering period. Sellers often borrow shares on securities lending for the secondary offering then buy the discounted shares and return them, a strategy that could generate price differences.


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



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