Financial Supervisory Service Issues Consumer Warning on Increasing Unlisted Stock Investment Solicitations

[Asia Economy Reporter Myunghwan Lee] The Financial Supervisory Service (FSS) announced on the 14th that it has issued a consumer alert after discovering cases where investments in unlisted stocks were solicited without submitting securities registration statements, using newspaper advertisements and social networking services (SNS).

Unlisted stocks often induce investments by enticing the public with themes such as new technology development or attracting overseas investment, which are difficult for ordinary people to verify, and the promise of high returns upon listing. However, since there is no disclosure data and it is often difficult to verify the actual entity, investors need to exercise caution.

Since 2020, with the influx of many new investors due to the public offering boom, negative perceptions and caution regarding unlisted stock investments have eased. However, as a side effect, cases have increased where unverified business performance, fundraising, and listing plans are presented in a false or exaggerated manner through channels such as text messages or SNS targeting individual investors to solicit investments.

The FSS warned that investments in unlisted stocks violating disclosure obligations lack publicly available information and monitoring mechanisms, making it easy for individual investors to suffer damages due to price manipulation and other issues.

When investing in unlisted stocks, consumers should first check whether disclosure obligations, such as the submission of securities registration statements, have been violated. If an unlisted company or its shareholders solicit new share issuance or purchase of existing shares to many ordinary people, disclosure obligations such as securities registration statements are imposed in advance. Therefore, if the registration statement cannot be found through the FSS electronic disclosure system (DART), caution is advised when investing.

Additionally, publicly disclosed investment information may be false or exaggerated. Unlisted companies may not provide sufficient information about financial status, business structure, or investment risks, or the information may differ from the facts.

Investors need to separately verify the substance of the company and its business. It is difficult to confirm the facts regarding the company’s tangible and intangible assets, technological capabilities, and goodwill, so investors must make efforts to understand the actual entity of the company themselves.

Even if investors suffer actual damages from investing in unlisted stocks, relief may be difficult. This is because damages caused by transactions with unauthorized operators who are not regulated financial companies are not subject to dispute mediation by the FSS. The low trading volume of unlisted stocks should also be considered. When trading volume is low, it is difficult to properly evaluate market value, and price volatility can be high. There is also a risk of exposure to price manipulation due to the lack of market monitoring mechanisms.

An FSS official stated, "If illegal activities such as disclosure violations and unfair trading related to unlisted stock transactions are discovered, we will respond strictly through disclosure investigations, unfair trading investigations, confirmation of violations, and administrative sanctions." He added, "To prevent disclosure violations and unfair trading by unlisted companies, we will continue guidance, publicity, and educational activities in cooperation with related organizations."

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