Korean financial authorities launch probe into stock sell-off rout

[Photo by MK DB]

South Korea’s financial authorities have launched a full-scale investigation into the suspected stock manipulation scheme that is believed to be behind a recent sell-off triggered by contract for difference (CFD) trading by a foreign securities company.

According to multiple sources, the capital market investigation team under the Financial Services Commission (FSC) conducted a search and seizure operation on Thursday at multiple locations related to a local investment consulting firm.

The company is suspected to be behind the stock price manipulation, including its office in Gangnam District in southern Seoul.

Police officers also seized over 200 mobile phones from the consulting firm on Wednesday.

The Seoul Gangnam Police Station received a call on April 25 of a fight breaking out at the office among investors claiming that they had lost their investment money. Police officers rushed to the scene and seized mobile phones and other pieces of evidence.

The police began analyzing the seized items that are suspected to have been used in stock trading.

The search and seizure operation by the financial regulator seems to be aimed at getting a more concrete understanding of the suspicious circumstances following the law enforcement investigation.

According to reports, the financial authorities received tips around the time of the sell-off and have since found evidence of a potential Ponzi scheme designed to inflate stock prices artificially.

Some suspects were reportedly aware of the investigation being launched by financial regulators and dumped stocks in advance to avoid potential losses, possibly leading to a sharp decline in the prices of some stocks during the rout.

Eight stocks have been affected by the sell-off, with Seoul City Gas Co., Daesung Holdings Co., and Sunkwang Co. recording a lower limit price for four consecutive days, leading to a 76 percent drop over four days compared to their closing price on April 21. Samchully Co. experienced a 75 percent drop over the four days.

Most of the stocks, however, are now being bought by individual investors at low prices. Over the past four days, Daou Data Corp., Harim Holdings Co., Sebang Co., and Samchully have been bought for a combined total of nearly 120 billion won ($89.6 million).

The trading volume of these stocks has surged.

Samchully saw its trading volume skyrocket to 3.05 million shares in just one day, over 70 times the trading volume in the previous day.