Businesses, homes raided for alleged small cap manipulation

Finance

Published: 28 Apr. 2023, 20:03 Updated: 01 May. 2023, 16:06

Businesses, homes raided for alleged small cap manipulation

Financial authorities on Thursday raid an office building in Gangnam District, southern Seoul, that was used by alleged stock manipulators in the recent small cap manipulation scheme. [NEWS1]

Financial authorities and prosecutors raided the residences, businesses and an office of individuals suspected of manipulating the prices of small caps that slipped the 30-percent daily limit for almost a week.

The individuals are suspected of manipulating the price of eight stocks, including Seoul City Gas, Daesung Holdings, Samchully, Sebang, Sunkwang, Harim Holdings and Daol Investment & Securities.

In particular, they are accused of engaging in matched orders, when buyers and sellers illegally transfer large amount of stock at a pre-determined time and price. Financial authorities believe the suspects had been making proxy investments since 2020.

Except CJ Corporation, which fell relatively less due to strong buying, all seven others hit the daily price floor of minus 30 percent on Monday.

Harim Holdings and Daol Investment & Securities fell around 10 percent the next day and remained flat throughout the week. Sebang hit the bottom once again on Wednesday and the rest plunged for another day, only to bounce back Friday.

The stocks supposedly nosedived when the manipulators unloaded their shares after sensing an upcoming probe by financial regulators.

The Seoul Southern District Prosecutors' Office announced Friday that the prosecution will form a joint investigation team consisting of officials from the prosecution, the Financial Services Commission (FSC) and Financial Supervisory Service (FSS).

Officials of these agencies on Thursday raided the office building in Gangnam and the houses of 10 people suspected of manipulating the stocks.

All 10 people were banned by the Seoul Southern District Court from leaving the country.

“Financial investigations typically involve the FSS summoning suspects for inquiry, but the severity of the case had the FSC, capable of conducting investigations by force, join the probe,” a financial official said.

An indoor golf traninig center where alleged manipulators collected commissions making false payments. [NEWS1]

Some of the alleged manipulators collected their commissions by using their investors' credit cards at complicit restaurants or golf businesses to make bogus purchases and evade monitoring.

Several laptops supposedly used to manipulate stocks and notepads scribbled with plots for the scheme were found in the Gangnam office.

The 10 suspects abruptly moved out of the Gangnam office when media outlets began covering the incident, according to a realtor at a nearby real estate office.

Public figures, including singer Im Chang-jung, were involved in the scam, possibly as victims. Im lent the individuals a sum of 3 billion won ($2.2 million). He claims he was unaware of the alleged manipulation and is a victim of the case. Im told a news outlet that his trading account had 2 billion won on Sunday, but only 189 million won was left as of Tuesday.

There are around a thousand victims so far, according to media reports.

“Handling the case expeditiously through interagency cooperation is most crucial for the public,” FSC Chairman Kim Joo-hyun told reporters during a real estate consortium event held at the Korea Federation of Banks in central Seoul on Thursday.

A large volume of the trades went through the French financial firm Societe Generale Securities.

Analysts speculate that the stock plunged from the liquidation of a contract for difference, a type of equity derivative.

BY KIM NAM-JUN, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]