Regulator uncovers derivative irregularities costing investors billions

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Regulator uncovers derivative irregularities costing investors billions

The Financial Supervisory Service (FSS) reported on Sunday there were misleading advertisements and a lack of monitoring regarding contracts for differences (CFD) securities on or around April 24. [NEWS1]

The Financial Supervisory Service (FSS) reported on Sunday there were misleading advertisements and a lack of monitoring regarding contracts for differences (CFD) securities on or around April 24. [NEWS1]

 
The financial regulator confirmed on Sunday that it found irregularities regarding the trading of an equity derivative that caused a handful of stocks to crash in April. 
 
The Financial Supervisory Service (FSS) reported there were misleading advertisements and a lack of monitoring regarding contracts for differences (CFD) securities on or around April 24.
 
CFDs are leveraged derivatives typically used by institutional investors. They allow the trade of assets without fully owning them.
 
About 1,000 retail investors lost more than $9.7 billion within a month due to a stock manipulation scheme allegedly led by Ra Deok-yeon, a key suspect who ran a quasi-investment advisory firm to pump up prices of at least eight stocks for as long as three years. These stocks hit the daily limit of minus 30 percent for almost four trading days from April 24.  
 
The case came to light when it was revealed that some high-income investors and public figures such as singer Im Chang-jung were involved in the scam. Im claimed to be a victim of the case and was unaware of the stock manipulation.
 
The financial regulator said that false advertisements by such advisory firms included promoting themselves to have a distinct leverage in trading when other firms offered the same services. 
 
When the investors opened CFD accounts, there were cases when the firms did not properly verify their identities when the law required them to match the investors’ identities with their accounts through at least two verification processes such as submitting a copy of their ID cards and video calls.
 
The firms also did not properly inform their clients about risk factors, which meant there was a lack of guidance about investor risks as the firms should fully inform any investors as CFDs are highly advanced financial products.
 
“Through the results of this inspection, we will crack down on the illegalities and work toward improving protecting financial clients,” FSS said. 
 
In May, the financial watchdogs including FSS announced a series of measures over brokers and unlicensed investment advisories to prevent illegal trades and cultivate a sound investment culture.
 
 

BY LEE JAE-LIM [[email protected]]
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