Two overseas firms indicted for $16 million short selling scandal

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Two overseas firms indicted for $16 million short selling scandal

Published: 15 Oct. 2024, 18:34 Updated: 15 Oct. 2024, 18:49

SHIN HA-NEE
shin.hanee@joongang.co.kr

Audio report: written by reporters, read by AI

President Yoon Suk Yeol speaks during a cabinet meeting at the presidential office in Yongsan District, central Seoul, on Tuesday, where he promised stringent measures to prevent illegal short selling. [NEWS1]

Prosecutors indicted two overseas investment firms on charges of naked short selling in the government's latest move to stamp out the illegal practice.

The Seoul Southern District Prosecutors' Office said Tuesday that it had indicted a global investment bank, as well as an overseas asset manager and a trader from that firm, for alleged violations of the Financial Investment Services and Capital Markets Act.

The two firms gained about 22 billion won ($16 million) through illegal short selling, the office said. The global investment bank allegedly shorted stocks worth 18.32 billion won between September 2021 and May 2022 without first borrowing the necessary shares.

The firm’s traders were repeatedly notified that their stock account balance was insufficient by the time of the settlement, prosecutors said, but continued to engage in short sales, which constitutes intentional naked short selling. The firm allegedly ignored the reoccurrence of such illegal activities despite being aware of them.

The indicted trader allegedly manipulated the stock price of SK hynix in 2019 to gain 3.57 billion won in total.

The trader allegedly brought down the share price to lower the price of a block deal that was under negotiation at the time while also profiting from naked short selling. The asset manager was indicted on the charge of having failed to prevent the trader's transgressions.

Naked short selling, the practice of selling shares without having borrowed them first, is illegal in many countries including Korea.

The Korean government implemented a temporary ban on all short selling in November in order to stamp out naked short selling. It extended that ban to March 2025 after uncovering illegal short sales among global investment banks.

President Yoon Suk Yeol once again promised a stricter system to prevent naked short selling during a cabinet meeting on Tuesday, saying that the upcoming monitoring system and harsher rules would “level the playing field between institutional and retail investors and significantly enhance penalties against illegal short selling and unfair trading practices.”

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]