[EXCLUSIVE] Kiwoom and eBest are targets of investor suits

Retail investors who lost money in recent small-cap stock crashes are filing civil complaints against brokers they say are to blame.

People walk past Kiwoom Securities office in Yeouido, western Seoul, on May 4. [NEWS1]

Retail investors who lost money in recent small-cap stock crashes are filing civil complaints against brokers they say are to blame.

Kiwoom Securities and eBest Investment & Securities are some of the targets of the complaints.

The investors will file suit arguing that disclosures related to the risks of trading through investment accounts that enable the use of leverage were not disclosed.

Eight small-caps fell dramatically for almost a week from April 24. Regulators are investigating whether any illegal trading may have occurred in transactions involving contracts for difference securities.

Daou Data, Seoul City Gas and Samchul are among the shares that plummeted.

Stock manipulation and fundraising without approval are some of the charges raised against the accused by the retail investors.

One & Partners has two clients in the civil complaint so far and is waiting to receive more. At least five more people inquired with the law firm about the suit.

It will file against "all the brokers where the victims opened accounts for credit trading," said Jeong Byeong-weon, a managing partner at One & Partners.

"People like Ra Deok-yeon took advantage of the brokerage system" that allows people to open an account online. "If brokers had strictly managed the system, the investors wouldn't have lost this amount of money."

Ra is head of an advisory firm and a suspect in the stock manipulation case. Some of the alleged victims had contact with Ra, while others met with people working for Ra, according to Jeong.

Ra and others are accused of laundering parts of the investment proceeds and evading taxes through other entities, like a golf academy and restaurants.

Some of the investors lost more money than they had in the account because of leverage.

“At this point, I don’t think victims will be able to be compensated for filing a complaint against Ra,” Jeong added.

The law firm did not disclose the amount of the compensation being sought.

Daou Kiwoom Group Executive Chairman Kim Ik-rae sold 1.4 million shares of Daou Data two days before the collapse of the stock. Daou Data plunged 30 percent for three days from April 24. It owns 45.20 percent of Daou Technology, which owns more than 40 percent of Kiwoom Securities.

Kim has resigned from the board of Kiwoom Securities.

BY JIN MIN-JI [jin.minji@joongang.co.kr]