Meritz Securities IB Division Employees Illegally Profited Tens of Billions Through Fraudulent Transactions

Created SPCs for years to pursue private gains through fraudulent transactions
6-7 people including IB Head simultaneously disciplined... final dismissal under consideration

Several executives and employees of Meritz Securities' Investment Banking (IB) division were found to have created a separate legal entity (SPC) and used advance information on KOSDAQ companies to gain tens of billions of won in private profits, according to a financial regulator's inspection. Meritz Securities recently took personnel actions, including recommended resignations, against 6 to 7 of these executives and employees at once.

According to the IB industry on the 11th, Meritz Securities recently took personnel measures against 6 to 7 executives and employees, including the head of the IB division. During the Financial Supervisory Service's (FSS) inspection, serious misconduct by these individuals was uncovered, prompting the company to take preemptive disciplinary actions. A Meritz Securities official stated, "Related preliminary personnel actions were taken last Friday (the 6th)," adding, "Dismissal and other disciplinary measures are expected soon."

According to the FSS's interim inspection results, executives and employees of the IB division, led by Meritz Securities' Division A head, privately established an SPC and used advance information obtained during corporate finance operations to trade stocks, generating large-scale profits. They pursued private gains by directly investing in convertible bonds (CBs) and bonds with warrants (BWs), or by investing under the names of family members and relatives.

The FSS estimated that the profits gained through these methods amounted to tens of billions of won. Furthermore, the company was not informed that the SPCs and partnerships under the names of the individuals and their relatives invested subordinately in places where Meritz Securities' proprietary funds were invested as senior investors. Additionally, irregularities were detected in project financing (PF) transactions promoted by these executives and employees.

In response, Meritz Securities stated, "This was an act of deviation by some individual employees, and there was no financial loss to the company, shareholders, or investors," adding, "We plan to take corresponding measures based on the final inspection results."

Besides employee misconduct, company-level issues were also discovered. When acquiring certain CB issues, Meritz Securities received bonds as collateral from the issuer equivalent to the full amount of the CB issuance. This arrangement prevented the CB issuer from using the raised funds for investment or operational purposes by requiring the acquisition of collateral bonds.

The FSS has been inspecting Meritz Securities for several months regarding allegations of illicit stock trading involving Ihwa Electric. This is to verify whether information was shared between the two companies concerning Meritz Securities selling shares and profiting just before Ihwa Electric was suspended from trading due to embezzlement and breach of trust charges against Kim Young-jun, chairman of the Ihwa Group.

Meritz Securities sold shares worth 23.7 billion won in cash by exercising BW warrants worth 16 billion won just before Ihwa Electric's trading suspension. Due to this case, Choi Hee-moon, Vice Chairman of Meritz Securities, has been summoned as a witness to the National Assembly audit and will appear at the hearing.

In addition to employee misconduct and the Ihwa Electric case, the FSS is examining whether there are other issues in Meritz Securities' dealings with various KOSDAQ companies. The FSS stated, "There is a possibility of other private gain-seeking acts during corporate finance processes," and added, "We will focus on thoroughly inspecting other illegal activities through additional investigations."

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