Supreme Court: Undisclosed Stock 'Scalping' Violates Capital Markets Act

Buying Stocks in Advance and Appearing on Securities Broadcasts to 'Recommend'... Acquitted in All 1st, 2nd, and Remand Trials
Supreme Court: "Use of Fraudulent Means, Planning, and Tricks... Constitutes Use of Deception"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that the so-called ‘scalping’?appearing on securities broadcasts to recommend specific stocks previously purchased, then selling all held stocks after the price rises to gain capital gains?constitutes a violation of the Capital Markets Act.

The Supreme Court’s 3rd Division (Presiding Justice Kim Jae-hyung) announced on the 12th that it overturned the lower court’s acquittal ruling in the retrial of investment expert Mr. A, who was indicted for violating the Capital Markets Act, and remanded the case to the Seoul High Court.

Mr. A, who had been active on securities broadcasts since around 2009, was prosecuted in 2013 on charges of purchasing stocks such as AhnLab (Ahn Cheol-soo Research Institute), Seohan, and Biospace at low prices in advance from October 2011 to January 2012, recommending their purchase to investors through broadcasts and his internet cafe, and then selling immediately after the stock price rose, earning approximately 3.7 billion KRW in profits.

The method known as ‘scalping’?buying specific stocks just before recommending them as long-term investments, then immediately selling them when prices rise to secure profits?was first detected by judicial authorities in Mr. A’s case.

The first and second trials acquitted him, acknowledging that Mr. A recommended the purchase of three stocks on securities broadcasts but ruling that this did not violate the Capital Markets Act.

However, the Supreme Court, in rulings on other cases, determined that scalping by investment advisory firms, securities analysts, media personnel, and operators of investment-related websites constitutes ‘acts using unfair means, plans, or devices’ and ‘use of deception’ prohibited by the Capital Markets Act. This precedent influenced Mr. A’s case, leading the Supreme Court in 2017 to overturn his acquittal.

Nevertheless, the retrial court again acquitted him, judging that "it cannot be concluded that Mr. A expressed an intention for general investors to purchase the three stocks on the broadcast or that he intended to induce stock purchases."

In the final retrial, the Supreme Court recognized Mr. A’s guilt. The court stated, "The defendant introduced to investors that the three stocks, including AhnLab, were suitable for purchase, thereby arousing the intention to buy, which can be seen as recommending the purchase of securities. The indictment’s fact that he recommended the purchase of securities without disclosing his own interests in the securities, which he had previously purchased and held and might sell after the recommendation, is acknowledged."

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