Employee Profiting from Non-Public Work Information... FSC Referred to Prosecutors

by Cho Seulkina

Published 30 Jan.2025 12:00(KST)

Employees of the relevant company and advisory firm who obtained insider information about a tender offer during the course of their work and used it to purchase stocks in advance, thereby gaining illicit profits amounting to hundreds of millions to billions of Korean won, have been reported to the prosecution.

The Securities and Futures Commission under the Financial Services Commission announced on the 30th that at its 2nd regular meeting on the 22nd, it detected such conduct and reported it to the prosecution for violating Article 174 of the Act on Capital Market and Financial Investment Business, which prohibits the use of undisclosed material information, and took notification measures.

Employee Profiting from Non-Public Work Information... FSC Referred to Prosecutors

Employee B of tender offeror Company A conveyed information about the implementation of a tender offer for a specific listed company’s stock in the fourth quarter of 2023, which he learned during the tender offer process, to acquaintances. Subsequently, by enabling them to trade stocks before the information was publicly disclosed, they obtained illicit profits amounting to hundreds of millions of Korean won.

Employee D of law firm C, which is responsible for related legal advice, also obtained information on tender offers for three stocks during 2021?2023 in the course of work, and used his own and nominee accounts to directly purchase the stocks before the information was disclosed or passed the information to acquaintances for their use. The illicit profits gained through this were estimated to be from hundreds of millions to billions of Korean won.

In D’s case, in addition to tender offer information, it was confirmed that he also used information about capital increase decisions of two other companies advised by the law firm and stock transfer contracts involving changes in major shareholders before they were made public, thereby obtaining illicit profits.

Employees of tender offerors (planned), advisory firms (legal, accounting, etc.), and tender offer handling companies (securities firms) who use tender offer information obtained in the course of their duties to trade stocks or provide such information to others for trading may be subject to criminal penalties for violating the Capital Markets Act.

A Financial Services Commission official criticized, “Acts like those in this case, where not only employees of the tender offeror but also members of advisory firms participating in the tender offer process under contracts with them betray social expectations for compliance and trust from clients by abusing information obtained in the course of their duties for personal gain, seriously undermine the fairness of the tender offer system and the order of transactions in the capital market.”

He added, “Going forward, financial authorities will continue to expand the scope and targets of monitoring unfair trading related to tender offer stocks to ensure the fairness of the tender offer system and investor trust, and will thoroughly investigate and strictly deal with any detected illegal activities.”