[Beginner's Guide] The Second SG Incident? The Story Behind the 500 Billion Market Cap Evaporation

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Less than two months after the SG (Soci?t? G?n?rale) incident that plunged our stock market into fear, a similar event has occurred again.

On the 14th, a total of five stocks including Dongil Industry recorded the lower limit price at around the same time.

These stocks had steadily risen over several months but suddenly plunged to the lower limit price in one day, raising concerns that this might be a ‘Second SG Incident’.

Let’s take a closer look at the truth behind this event.

Second SG Incident? … Five Stocks Hit Lower Limit Price in Bulk

On the 14th, our stock market turned bearish in just one day.

On this day, four stocks (Banglim, Dongil Industry, Manho Steel, Daehan Textile) on the KOSPI market and one stock (Dongil Metal) on the KOSDAQ market hit the lower limit price.

These stocks showed weakness during the morning session, with Banglim dropping to the price limit (30.00%) around 11:45 AM, and Dongil Metal also hitting the lower limit price at a similar time, 11:57 AM.

The other stocks consecutively hit the lower limit price starting around 12:10 PM.

As these five stocks simultaneously dropped to the price limit, a market capitalization of 504.7 billion KRW evaporated in just one day.

Except for Banglim, these stocks share common traits such as steadily rising stock prices since around March 2020, about three years ago, and having a low free float ratio.

The market’s concern about this event being a ‘Second SG Incident’ stems from the fact that five unrelated stocks hit the lower limit price simultaneously on the same day, their stock prices steadily increased over several years, and they have a small number of circulating shares.

Another common point is that these stocks were recommended by the online stock community Barun Investment Research Institute.

Because of this, financial authorities are focusing on the community operator, Mr. Kang (52), as the mastermind behind this incident.

In fact, Mr. Kang recently posted articles claiming that these stocks were excessively undervalued.

Also, Mr. Kang was sentenced by the Supreme Court last year to two years in prison, four years probation, and a fine of 400 million KRW for market manipulation charges.

However, unlike the SG incident, this case is not considered market manipulation exploiting loopholes in Contract for Difference (CFD) trading, as the shares did not come from a common selling window.

Authorities Launch Emergency Inspection

[Image source=Yonhap News]

On the 14th, the Financial Services Commission, Financial Supervisory Service, and Korea Exchange jointly announced through a press release that trading of the five stocks that plunged sharply would be immediately suspended starting the next day, the 15th.

Additionally, the Korea Exchange requested disclosure inquiries for these five stocks, designating Dongil Metal, Banglim, and Manho Steel as investment caution stocks.

The prosecution swiftly responded by raiding the residence of Mr. Kang, who was identified as the mastermind behind the incident, and launched a full-scale investigation.

The prosecution and financial authorities reportedly had been monitoring suspicious signs of unfair trading related to these five stocks even before the price crash.

Lee Bok-hyun, Governor of the Financial Supervisory Service, stated, “Financial authorities and the prosecution are conducting investigations and inquiries, and we expect to disclose the results promptly.”

Differences from the SG Incident?

Although the gradual rise in stock prices over a long period and the sudden plunge to the lower limit price are similar to the SG incident, there are many differences.

Dongil Industry and Manho Steel are steel companies, Dongil Metal is a construction machinery company, and Daehan Textile and Banglim are textile and apparel companies, so there is no particular commonality in their industries.

Unlike the SG incident where shares were dumped simultaneously from SG Securities, this case involves sell orders from Shinhan Investment Corp., Kiwoom Securities, KB Securities, and other firms rather than foreign securities companies.

Also, unlike the SG incident which expanded through a multi-level structure, this case is believed to have involved a small number of people.

Dear Joorini investors,

The fact that a similar incident occurred before the shock of the SG incident has even subsided

is a painful indication that market surveillance functions did not operate properly.

It is fortunate that, unlike the SG incident, financial authorities took immediate action such as suspending trading,

but it is also regrettable that despite monitoring the five stocks’ lower limit price incident, it was not prevented in advance.

To prevent such incidents from recurring, strict responses to stock price manipulation are necessary.

Also, individual investors should avoid blind investments,

and take the lead in monitoring the market and raising their voices.

We hope that this incident raises awareness among both investors and financial authorities so that the same event does not repeat,

and we conclude this article here.

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This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and difficult economic stories in an easy and friendly way so that stock beginners can understand. By subscribing, you can receive articles for free.

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