"Stock Accounts Lent to Investment Experts... Beware of Penalties for Exploiting Unfair Trading"

Published 24 Feb.2021 15:19(KST)

[Asia Economy Reporter Park Jihwan] Financial authorities have warned that lending stock accounts to investment experts can lead to criminal penalties if the accounts are misused for unfair trading.

The Financial Services Commission, Financial Supervisory Service, and Korea Exchange held the 2nd Unfair Trading Trend Monitoring Team (hereafter Monitoring Team) meeting on the 24th and reported that suspicious unfair trading using multiple third-party accounts has been frequently occurring recently.

According to the financial authorities, unfair trading cases have been uncovered where the relationship between the actual account owner and the person conducting trades on their behalf is not limited to family, relatives, or company employees. There were also cases where over 100 accounts were linked as related accounts in a single incident.

The financial authorities pointed out, "Many cases have been found where stock accounts are entrusted to investment experts by registering them as order agents through stock investment communities, acquaintances, or securities company employees' recommendations." This is closely related to the Fear of Missing Out (FOMO) phenomenon, where people with little stock investment experience rush into investing due to concerns about being left behind in the recent rising stock market, entrusting their accounts to experts expected to generate high returns.

If an account entrusted to another person is misused for unfair trading in the capital market, the account owner can also suffer damages. In particular, if it is judged that the account owner knowingly continued to provide the account while aware of the unfair trading conducted by others, they can be criminally punished as an accomplice in unfair trading.

Even if only the account name is lent, if it is recognized that the person intentionally facilitated unfair trading using nominee transactions, they can be criminally punished as an accomplice under the Real Name Financial Transactions Act. Simply lending certificates or similar methods to entrust accounts can lead to criminal penalties under the Electronic Financial Transactions Act for violating regulations related to access media, especially if compensation is received or if the person knows the account will be used for illegal activities.

The financial authorities emphasized that stock accounts should not be entrusted to others if there is suspicion that they will be used for unfair trading or other illegal activities. They also added that caution is necessary even when simply lending account names or certificates. Securities company employees who arrange customer accounts in suspicious unfair trading situations can similarly be subject to investigation and sanctions.

The financial authorities and the Korea Exchange plan to strictly take action against suspects who misuse third-party accounts. The goal is to prevent investors from unintentionally becoming involved in illegal activities and to proactively protect investors from damages.