Financial Services Commission Strengthens Information Sharing with National Tax Service to Crack Down on Unfair Trading

Long-term Price Manipulation Cases After SG Incident
Unfair Trading Detected Through Abuse of CB Call Options

Yonhap News

The Financial Services Commission (FSC) will strengthen its response to unfair trade practices by receiving information on unlisted corporations from the National Tax Service (NTS) going forward.

On the 27th, the FSC held the '2024 3rd Unfair Trade Investigation and Hearing Agencies Council' with the prosecution, the Financial Supervisory Service (FSS), and the Korea Exchange (KRX) to discuss major issues related to unfair trade practices, including this matter.

Until now, the FSC has shared relevant information with the NTS when reporting or notifying investigative agencies after investigating unfair trade practices; however, the FSC had not received information from the NTS.

Since January this year, with the amendment of the Capital Markets Act introducing a surcharge system for the three major unfair trade practices, the FSC decided to promote information sharing on unlisted corporations with the NTS after practical consultations. The Framework Act on National Taxes stipulates that information from the NTS can be shared for the purpose of imposing and collecting surcharges.

The FSC stated, "By receiving information on unlisted corporations from the NTS, we plan to more promptly and effectively sanction unfair trade practices involving unlisted corporations."

Additionally, the council prepared detailed operational plans for imposing surcharges on unfair trade practices and reviewed follow-up amendments to the Enforcement Decree and subordinate regulations of the Capital Markets Act to diversify sanctions against unfair trade and illegal short selling.

The council also agreed that, regarding the recent increase in ultra-short-term unfair trade, the Korea Exchange will establish reasonable criteria for notifying suspicion, and financial authorities will take more proactive measures to sanction ultra-short-term unfair trade.

Since the 'SG (Soci?t? G?n?rale) Securities Price Drop Incident' in April last year, the FSC disclosed two major recent cases of unfair trade measures by the Securities and Futures Commission (SFC), including long-term price manipulation cases detected.

According to the SFC, professional investor Mr. A used multiple accounts under his own, family, and acquaintances' names to continuously and repeatedly submit price manipulation orders for Company B's stock, artificially boosting the stock price. Mr. A mobilized massive third-party funds, loans, and private loans for stock trading, using the maximum available leverage in each account through margin loans, stock-secured loans, and Contracts for Difference (CFD), thereby raising and maintaining the stock price. The SFC reported Mr. A to the prosecution for violating the prohibition on price manipulation.

The SFC also detected and reported to the prosecution a case where the largest shareholder of a listed company abused convertible bond (CB) call options for illicit trading. Mr. D, the largest shareholder and CEO of pharmaceutical company C, acquired CB call options from C at 1% of the face value, as the stock price was more than twice the conversion price and the success of C's Phase 3 clinical trial was anticipated. He conspired with the head of an asset management company to acquire these options. Subsequently, the asset management company sold them at the acquisition price to a profit-differentiated private equity fund without fulfilling disclosure obligations for shareholding. Mr. D and the asset management company head participated as subordinated investors in the private equity fund through nominee corporations, and the fund earned several hundred million won in illicit profits from selling the convertible bonds.

Standing Commissioner Lee Yoon-soo of the SFC emphasized, "As seen in these recent unfair trade cases, methods of unfair trade are becoming increasingly complex and diverse, continuously evolving. Relevant authorities must also continuously innovate investigation and hearing techniques and strengthen cooperation systems among related agencies."

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