Stock Prices Inflated by False Disclosures of 'New Business' Plans for Profiteering... NTS Launches Tax Probe into Price Manipulators

Tax Investigation Launched into 27 Entities for Stock Price Manipulation, Corporate Raiding, and Self-Dealing by Controlling Shareholders
Share Prices Soared 400% Within Two Months After False Disclosures, Then Plummeted
Minority Shareholders Left with Massive Losses

The National Tax Service (NTS) has officially launched a tax investigation into stock price manipulation groups that artificially inflated share prices through false disclosures about new business ventures, new drug development, or overseas resource development, and then sold their shares to pocket massive profits. The NTS expects that the amount of undeclared income under investigation will reach approximately 1 trillion won.

On July 29, the NTS announced that it will conduct tax audits on a total of 27 companies and related individuals who have infringed upon the interests of minority shareholders in the stock market. This includes nine companies that made false disclosures for the purpose of stock price manipulation, eight so-called "eat-and-run" corporate raiders, and ten controlling shareholders who privatized listed companies for personal gain.

On the 29th, Min Juwon, Director of the National Tax Service Investigation Bureau, is giving a briefing at the Government Sejong Complex on the commencement of a tax audit targeting 'unfair tax evaders in the stock market.' (Photo by National Tax Service)

Min Jewon, Director of the NTS Investigation Bureau, stated, "Due to unfair practices in the stock market, both domestic and foreign investors have turned away from the Korean stock market. The 'Korea Discount' phenomenon, where Korean companies are undervalued, has intensified and become a cause of Korea's economic stagnation." He added, "The NTS will conduct tax investigations on those who have unfairly profited by disrupting the stock market but have not paid their fair share of taxes."

Initially, the NTS has launched a focused tax investigation into price manipulators who made massive gains by artificially inflating stock prices through false disclosures and then selling large volumes of shares. According to the NTS, a price manipulator who is the major shareholder of unlisted domestic corporation A, registered on the Korea Over-the-Counter Market, acquired listed electric vehicle parts company B through company A and falsely promoted the launch of a new business, thereby artificially inflating the share prices of both A and B. In reality, A only acquired 5% of B's shares, indicating there was no genuine intention to acquire the company. A then sold all of its B shares on the market after B's stock price more than tripled. The price manipulator also sold part of A's shares, pocketing tens of billions of won in profits but failed to report the capital gains for tax purposes. After it was revealed that the new business plan was false, B's share price, which had risen on expectations, was cut in half, causing losses to minority shareholders. The NTS plans to strictly investigate unreported income from stock capital gains resulting from false promotions and will collect the relevant taxes.

The main allegations in the case of the 'nominal new business' under tax investigation by the National Tax Service.

According to the NTS, the share prices of companies that made false disclosures for the purpose of stock price manipulation surged fivefold on average within 64 days after the false disclosure. However, within an average of 68 days, their share prices fell back to about one-third of their peak levels.

Corporate raiders who used private loans to acquire sound companies and then drove them to ruin through embezzlement and other means, leaving only empty shells, have also become targets of the NTS investigation. After acquiring companies, these raiders established paper companies that did not conduct real business, paid fake consulting fees, or appointed non-working family members and relatives as company representatives or employees and paid them high salaries, thereby embezzling corporate funds. In addition, corporate raiders with large tax delinquencies avoided asset seizures by acquiring listed companies under their spouse’s name instead of their own, then had the acquired company borrow tens of billions of won and embezzled these funds.

Most of the companies under investigation have had their stock trading suspended or have been delisted due to corporate raiders. Even for companies where trading resumed, share prices fell by 86% compared to pre-acquisition levels, leaving them in an irrecoverable state.

Controlling shareholders who abused their authority to privatize listed companies for personal gain have also become targets of the NTS investigation. According to the NTS, these individuals arranged for companies controlled by their children to acquire shares in the listed company they controlled before the announcement of strong earnings. After the earnings announcement caused the share price to rise, the children's companies sold the shares for a profit. Director Min stated, "These individuals also transferred assets to their children without taxes through unfair mergers and exclusive business deals to facilitate succession of management rights." He emphasized, "It was found that the children of those under investigation underreported the value of inherited assets by about 92%, thereby evading taxes."

The NTS plans to thoroughly verify unfair trading tax evaders who have damaged the order of the stock market and unlawfully taken profits from minority shareholders and other investors. To do so, the NTS will rigorously track financial accounts, use digital forensics such as document restoration and forgery detection, and actively utilize data from foreign exchange records, the Financial Intelligence Unit (FIU), and investigative agencies to trace the sources, flows, and outflows of funds. The NTS also intends to identify and collect taxes from ultimate beneficiaries who have concealed assets under other people's names and lived in luxury while evading tax obligations.

If there is a risk that those under investigation may intentionally dispose of assets, the NTS will conduct asset seizures (preliminary preservation seizures) even before taxes are assessed. In cases of tax evasion or issuance of false tax invoices, the NTS will notify investigative agencies to ensure appropriate punishment is imposed.

Director Min stated, "The NTS will strengthen its own information gathering and share information seamlessly with investigative and financial authorities. If additional stock price manipulation is identified, we will respond strongly, including conducting additional tax investigations." He added, "We will also consult with relevant agencies on ways to disclose the unfair tax evasion practices identified in the stock market during this investigation, so that all investors can be fully informed."

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