"The Main Culprits Behind the Stock Price Crash, Ra Deok-yeon and Kang Ki-hyeok... How Did Their Methods Differ?"

Commonalities in Price Manipulation via Wash Trading
Differences in Investor Recruitment and Cafe Management

Legal proceedings are accelerating against Hoan CEO Ra Deok-yeon (42), known as the central figure in the 'SG Securities Stock Price Crash Incident' and the 'Massive Limit-Down Incident of Five Stock Items,' as well as Kang Ki-hyuk (52), operator of the Naver cafe 'Barun Investment Research Institute.' Although their methods and charges appear similar at first glance, there are differences in the details. This has drawn attention to the direction the prosecution will take during investigation and indictment.

According to the legal community on the 14th, on the 12th, Judge Kim Ji-sook of the Seoul Southern District Court, responsible for warrants, issued an arrest warrant for Kang, the head of the Naver stock-related cafe, who is suspected of leading the 'massive limit-down incident of five stock items,' citing concerns over flight risk.

Regarding Ra and his associates, the prosecution began indicting three people, including Ra, on the 19th of last month and has brought a total of eight accomplices to trial as of this day. In the second trial held the day before, the prosecution revealed that they estimate the size of Ra’s organization to be about 60 to 80 people, and investigations into accomplices are ongoing.

Regarding the '5 Stocks Hitting Lower Limit Incident,' Kang Ki-hyun (front), the operator of an online stock information cafe, is attending the warrant hearing held on the morning of the 12th at the Seoul Southern District Court in Yangcheon-gu. Photo by Yonhap News

▲Similar Incident Patterns... Charges of 'Market Manipulation Gains'

The two central figures in the 'SG Incident' and the 'Five Stock Limit-Down Incident' face similar charges of market manipulation. The way these incidents became public is also similar.

Ra and his group drew public attention when the stock prices of eight items, including Samchully and Dow Data, plummeted at the end of April, while Kang’s case involved the sudden crash of five stocks, including Dongil Industry and Dongil Metal, at the end of June. Because of this, Kang’s case has sometimes been called the 'Second SG Incident.'

Both cases involve allegations of market manipulation through prearranged trading (trades where price and timing are predetermined). The prosecution believes Ra’s group manipulated the market by using investors’ mobile phones for prearranged trades, gaining approximately 730.5 billion KRW in illicit profits. Kang is accused of obtaining about 35.9 billion KRW in illicit profits through thousands of prearranged trades and market manipulation using dozens of accounts recruited via his cafe along with his associates.

Another commonality is that all of them deny their charges. Before the pretrial detention hearing on the 12th, Kang told reporters when asked if he admitted to gaining illicit profits through market manipulation, "I do not admit it," and has consistently claimed his actions were part of 'shareholder activism,' not market manipulation. Ra also denied market manipulation charges at his first trial on the 29th of last month, although he admitted to unregistered investment advisory business charges.

▲Differences in Investor Recruitment Methods and Whether There Were Earnings Outside Stock Trading

However, there are differences in the details. First, how investors were recruited. Ra is accused of systematically recruiting investors with his associates, including Hoan employees, opening mobile phone lines under their names, and managing stock accounts to control buying and selling, thereby raising stock prices.

In contrast, in the 'Five Stock Limit-Down Incident,' the related stocks were frequently mentioned in Kang’s Naver cafe, and Kang is known to have provided information and coordinated investments with investors to adjust supply and demand.

Also, while Ra’s group allegedly took half of investors’ investment profits as fees during market manipulation, no such evidence has surfaced regarding Kang. Ra’s group is charged with violating the Capital Markets Act and the Act on the Aggravated Punishment of Specific Economic Crimes, including money laundering and concealment of these fees, whereas Kang currently faces only charges under the Capital Markets Act.

Ra Deok-yeon, CEO of Hoan, who is suspected of leading stock price manipulation related to the SG (Soci?t? G?n?rale) Securities crash incident, is attending a pre-arrest suspect hearing (warrant examination) held at the Seoul Southern District Court in May. Photo by Yonhap News

Since the main perpetrators continue to deny market manipulation charges, the prosecution’s proof will be crucial. For prearranged trading, it is key to determine whether buying and selling were planned in advance and whether the trades were conducted to artificially boost stock prices. According to Ra’s group’s second trial, the prosecution plans to prove their charges through evidence such as accounts involved in market manipulation and witness testimonies from employees who worked with Ra.

Ra’s trial is still ongoing, and Kang’s case has just entered the stage of detention investigation, so it is difficult to predict the severity of their sentences if found guilty. However, under the current Capital Markets Act, unfair trading gains between 500 million KRW and less than 5 billion KRW carry a minimum sentence of three years’ imprisonment, and gains exceeding 5 billion KRW can result in life imprisonment, indicating strong penalties. Yet, the legal community notes that calculating illicit gains from stock price manipulation is challenging. Korean law favors the defendant if the amount of illicit gains is unclear. The Capital Markets Act also includes a proviso that when it is difficult to calculate profits from violations, the maximum fine is capped at 500 million KRW.

However, if the illicit gains estimated by the prosecution for Ra and Kang are recognized, they are likely to receive heavy sentences. For example, Kim Jae-hyun, the main culprit in the 'Optimus Incident,' was sentenced to 40 years in prison and fined approximately 75.175 billion KRW by the Supreme Court for defrauding about 1.19 trillion KRW from 3,200 people under the pretense of investing in confirmed public institution revenue bonds. Lee Jong-pil, former vice president of Lime Asset Management and the main culprit in the 'Lime Incident,' was sentenced to 20 years in prison by the Supreme Court for defrauding about 208 billion KRW from around 700 investors.

Regarding the 'Five Stock Limit-Down Incident,' Kang was subject to a travel ban and search and seizure the day after the incident, and was summoned and investigated as a suspect over three days from the 3rd to the 5th. With Kang’s detention secured through the recent arrest warrant, active investigations are expected to prove his charges.

Seung Jae-hyun, a research fellow at the Korea Institute of Criminology and Justice Policy, said, "To prove market manipulation through prearranged trading, it is necessary to examine the methods of prearranged trading, the number of people involved, and whether these actions caused abnormal stock price drops or rises. The core is to prove that buyers and sellers knowingly traded, which ultimately influenced price fluctuations."

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