Insider Information Generates 50 Billion Won Profit... Multiple Securities Firms Caught for PF Misconduct

#. An executive at Securities Company A unjustly received approximately 50 billion KRW in PF project profits by using non-public development progress information of a real estate project financing (PF) site to invest in convertible bonds (CB) related to the developer through a corporation affiliated with himself.

#. An employee at Securities Company B obtained non-public information during the existing PF underwriting process that the developer was planning an additional real estate development project near the business site. Using this information, the employee formed an investment association with colleagues and acquaintances and invested approximately 1 billion KRW in equity in the new project developer, scheming to receive unjust profits of about 2 billion KRW.

On the 10th, the Financial Supervisory Service (FSS) announced that it had conducted a real estate PF planning inspection on five securities companies and identified numerous cases of employees pursuing private interests and weaknesses in internal controls within the securities firms.

Amid increased profits related to real estate PF, some securities company employees received large performance bonuses, while illegal and unfair cases exploiting the superior positions of certain employees occurred. Related suspicions and complaints also followed.

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Typically, real estate PF consists of a bridge loan needed for the initial land purchase and permit stages and the main PF business that finances the construction to completion stages.

The FSS inspection revealed cases where non-public profitability and stability information of PF project sites were used to privately lend money to developers at interest rates exceeding legal limits, resulting in the embezzlement of approximately 4 billion KRW in high-interest payments. Using job-related information, employees acquired real estate worth about 90 billion KRW, and later, when selling, the affiliated securities company conducted underwriting and arranging related to the buyer’s financing (CB).

Weaknesses in company-level internal controls were also identified. Examples include mixing funds between different PF project SPCs or signing loan contracts with affiliates of borrowers who were not approved loan recipients.

Nominee investments by employees of securities firms and other financial companies violate the “Financial Investment Services and Capital Markets Act” (Capital Markets Act).

The FSS plans to strictly enforce sanctions on serious violations and promptly notify investigative agencies. Based on this inspection result, it will also seek measures to prevent recurrence of employees pursuing private interests and improve internal controls over real estate PF in securities companies.

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