[Reporter’s Notebook] 'Stock Price Manipulation': FSS and Korea Exchange Once Again Begin Investigations Too Late

"We have instructed to promptly initiate investigations into stocks suspected of unfair trading practices to ensure thorough protection of investors," said Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), during the executive meeting at 10 a.m. on the 25th, according to an urgently distributed document.

The belated 'too little, too late' investigation is showing signs of causing individual investors to suffer heavy losses. The previous day, eight stocks simultaneously closed at their lower price limits. Various speculations arose in the market. The financial authorities reportedly detected signs of stock price manipulation and plan to hand over related information to the prosecution. Although it has not yet been concluded as stock price manipulation, concrete circumstances have been identified, such as the manipulation group recruiting investors in a multi-level marketing style to drive up stock prices, suggesting that the aftermath will be severe.

The problem lies in the delayed supervision and investigation. Specific indications of stock price manipulation were revealed through a report by a media outlet. The investigation began after receiving a tip earlier this year, and the financial authorities started their inquiry at the media outlet’s request. This is virtually unprecedented. The Korea Exchange’s Market Surveillance Committee (MSC), which should have monitored stock price manipulation, and the FSS, which should have supervised it, had not even detected any signs.

Typically, when the exchange detects signs of unfair trading such as stock price manipulation, it notifies the MSC for review, which then reports the suspicion to the financial authorities (Financial Services Commission, FSC) and supervisory authorities (FSS). Depending on the case, the FSC or FSS then initiates further investigations. Of course, the FSC and FSS also start investigations upon receiving tips or complaints independently. The problem is that while the media recognized the issues first, these authorities were completely unaware and inactive.

The financial authorities have consistently recognized issues late and prolonged investigations, thereby increasing investor losses. It was common to miss the 'golden time' by conducting investigations for over a year before referring cases to the prosecution. As capital market crimes become increasingly sophisticated and intelligent, investors fail to receive adequate protection due to the delayed response of the supervisory authorities. Concerns are growing over the three major unfair practices: insider trading, market manipulation, and fraudulent trading activities. Governor Lee Bok-hyun’s recent directive for a swift investigation is appropriate but leaves much to be desired.

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