"Stock Leading Room Compensation Impossible" ... Financial Supervisory Service Issues 'Consumer Alert'

573 Complaints About Reading Rooms Filed Through March This Year
"Compensation Difficult Even If Deceived by False Advertising"... Investors Urged to Be Cautious

[Asia Economy Reporter Ji Yeon-jin] The Financial Supervisory Service (FSS) announced on the 5th that although so-called 'stock leading rooms' that encourage trading of specific stocks through open chat rooms are thriving due to the recent stock investment craze, consumer alerts have been issued as compensation for damages is virtually impossible.

According to the FSS, most 'stock leading rooms' are illegal under the Capital Markets Act, and advice from leading rooms without verified expertise can cause losses to investors. In particular, stock leading rooms operated by quasi-investment advisory firms, general corporations, or individuals constitute illegal acts under the Capital Markets Act as unregistered investment advisory services.

However, as such investment advice is provided, complaints from investors who suffered losses are increasing. Complaints related to leading rooms received by the FSS rose from 905 cases in 2018 to 1,138 in 2019, and surged by 53.3% to 1,744 cases last year. This year, complaints have already reached 573 cases as of the 22nd of last month.

Leading rooms lure investors with false and exaggerated advertisements such as 'guaranteed minimum OOO% return' and 'unconditional compensation for losses,' inviting them to VIP member rooms and inducing them to sign high-priced paid contracts.

For example, to deceive investors into thinking they are a regulated financial company, they use names similar to currently operating investment advisory firms, and falsely advertise that if investors follow the advisory content well, "an annual return of 500% is unconditionally guaranteed."

However, such agreements are illegal under the Capital Markets Act, and even if a good-faith investor demands fulfillment of the promise after losses occur, it may be difficult to receive compensation from the leading room, according to the FSS.

Also, some investors were deceived by advertisements claiming 'refunds are possible at any time' and joined paid memberships of leading rooms, but when investors canceled card payments to get refunds after the contract, the companies filed lawsuits against investors for unpaid service fees. Since quasi-investment advisory firms operating stock leading rooms are not regulated financial companies, it is difficult for investors to receive dispute mediation from the FSS even if legal disputes arise.

Recently, there were cases where paid membership contracts were induced with premium information related to virtual currencies such as 'Bitcoin, Ethereum,' whose prices had risen, and excessive penalties were charged when investors requested contract termination. Through open chat rooms, investors were enticed with virtual currency market analysis and stock recommendations, and after collecting an annual membership fee of 2.5 million KRW, when members requested cancellation, excessive amounts such as cancellation penalties (550,000 KRW) and information usage fees (800,000 KRW) were deducted, and refunds were refused.

In one leading room, after advertising a partnership with a securities firm's Home Trading System (HTS), an AI automatic trading program was sold for 7 million KRW,

and the program automatically traded stocks within the investor's deposit, but significant losses occurred in the automatically purchased stocks. The FSS emphasized, "Most securities firms do not have partnerships with leading room operators, so securities firm partnership advertisements by leading rooms not only mislead investors into misplaced trust but may also constitute fraud. Investors should be cautious of such false and exaggerated advertisements."

Furthermore, after signing contracts for investment advisory and stock trading program installation, if investors request refunds, some leading rooms refuse refunds on the grounds that the withdrawal period for the contract has passed. According to the Electronic Commerce Act, if a contract for purchase of goods or services is made with a telecommunication sales business operator, withdrawal is possible within 7 days from the date the written contract details are received. However, some leading rooms evade contact and refuse refunds, claiming the withdrawal period for program sales contracts subject to the Electronic Commerce Act has expired.

Investors have also suffered losses due to unfair trading such as front-running and price manipulation maliciously conducted by leading room operators. An FSS official said, "If involved in unfair trading such as front-running through stock leading rooms, investors may unknowingly participate in illegal activities, so caution is required," adding, "Financial authorities are monitoring and responding in real-time to unfair trading trends related to stock leading rooms through the 'Trend Monitoring Team.'"

The FSS plans to swiftly expel ghost or law-violating companies by canceling their registration ex officio due to business closure, violations of financial laws, or failure to complete compliance education, and by the first half of this year, it will expand comprehensive and undercover inspections of unregistered investment advisory and discretionary investment businesses and promptly request investigations for violations.

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