After Buy Recommendations, Secret Sales... Financial Supervisory Service Uncovers Illegal Activities of 49 Similar Investment Advisory Firms

[Asia Economy Reporter Ji-hwan Park] #A pseudo-investment advisory firm, Company A, purchased shares of an unlisted company at 120,000 KRW per share and projected the target price of those shares to be 500,000 to 600,000 KRW per share. They enticed members by offering them 'priority purchase opportunities' but sold the shares themselves at 250,000 KRW per share, making a large profit. Ultimately, only the members suffered significant investment losses.

The financial authorities have uncovered numerous illegal and unsound business practices by pseudo-investment advisory firms. Pseudo-investment advisory firms refer to businesses engaged in trading or brokerage of financial investment products or managing investors' assets on a discretionary basis.

On the 21st, the Financial Supervisory Service (FSS) announced that after inspecting illegal and unsound business practices of pseudo-investment advisory firms last year, it detected illegal activities by 49 firms, including operating unlicensed or unregistered financial investment businesses, violating Article 98 of the Capital Markets Act through unsound business practices, presenting false or exaggerated returns, and breaching reporting obligations.

This inspection targeted 351 firms out of 1,841 registered pseudo-investment advisory firms as of the end of June last year. Ten firms operating stock leading chat rooms with complaints and open chat room operators were selected for undercover inspections. Additionally, 341 firms with frequent complaints or long periods without inspection were subjected to comprehensive checks.

The inspection results revealed illegal activities in 49 firms, accounting for 14.0% of the 351 firms inspected, a detection rate similar to the previous year’s 14.3%. An FSS official stated, "Undercover inspections, which involved directly subscribing to paid services to verify specific allegations, had a higher detection rate than blanket inspections of website postings."

Regarding types of illegal activities, violations of reporting obligations arising when pseudo-investment advisory firms change their name, representative, or location accounted for the largest share at 44.4%. Unregistered investment advisory and discretionary management services provided on a one-on-one basis accounted for 33.3%. Pseudo-investment advisory firms are only allowed to provide advice through publications or electronic mailings issued to unspecified multiple recipients. The FSS has already notified investigative agencies about the firms found to have committed violations during the inspection.

An FSS official urged, "Consumer damage caused by illegal and unsound business practices of pseudo-investment advisory firms continues to occur, so it is necessary to exercise special caution when signing up for memberships and using investment information."

Since 2017, the FSS has operated a reward system to encourage active reporting of illegal activities by pseudo-investment advisory firms by general investors. The FSS reviews reports submitted to the Pseudo-Investment Advisory Damage Reporting Center twice a year and awards up to 2 million KRW per case for outstanding reports.

This content was produced with the assistance of AI translation services.