KB and Hana Securities Suspected of Illegal Wash Trading... Financial Supervisory Service Launches Intensive Inspection

The Financial Supervisory Service (FSS) has launched an inspection targeting KB Securities and Hana Securities over suspicions of illegal wash trading. KB Securities is suspected of conducting illegal business by claiming to invest customers' funds in short-term safe assets while actually investing in long-term bonds, and in the process, allegedly engaging in 'illegal wash trading' with Hana Securities.

The FSS will conduct an ad-hoc inspection of Hana Securities until the 26th. Since last week, the FSS has been inspecting Hana Securities to review the operation status of trust and wrap accounts, extending the inspection period by one week beyond the original schedule. In March, the FSS announced its basic supervision and inspection direction for the financial investment sector this year, stating that it would focus intensively on unhealthy practices in the bond market.

As suspicions of illegal wash trading between Hana Securities and KB Securities have surfaced, the FSS will also begin an ad-hoc inspection of KB Securities. According to financial sources, KB Securities is suspected of committing illegal business practices to boost returns while selling and managing assets of wrap account products such as Money Market Wrap (MMW). The FSS plans to investigate allegations that KB Securities invested corporate clients' funds, which were collected under the pretense of investing in '3-month safe assets,' into 1- to 3-year specialized financial bonds, and that it engaged in a Ponzi-like operation by using funds from new clients to pay off clients whose maturity had arrived or who requested early termination.

The FSS will also examine the suspicions of 'illegal wash trading' between KB Securities and Hana Securities. KB Securities is suspected of using its trust account at Hana Securities and illegally purchasing long-term bonds held in its corporate clients' accounts at book value before recognition of valuation losses. While Hana Securities and KB Securities are the first targets, there are voices claiming that several other securities firms have engaged in similar activities. Regarding this, an FSS official stated, "We will begin an ad-hoc inspection of KB Securities to investigate the suspicions of illegal wash trading. However, it has not yet been decided whether to expand the investigation to other securities firms."

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