KB employees accused of pocketing $9.7 mn using undisclosed information

[Photo by Lee Chung-woo]

KB Kookmin Bank employees responsible for brokerage services allegedly pocketed illicit profit worth 12.7 billion won ($9.7 million) by using confidential information of their clients. It is the first unfair trading scandal involving workers and the use of undisclosed information at a major bank in Korea.

Financial authorities said on Wednesday that they informed the prosecution about the suspicions surrounding unfair trading linked to confidential information by KB Kookmin Bank’s securities agency division. Seven to nine workers are allegedly involved.

The employees were aware of the information regarding the scale and timing of free share issuance while being responsible for the capital increase task at 61 listed companies between January 2021 and April 2023.

With the knowledge in hand, they are known to have purportedly made stock purchases in their own names and those of their family members.

The stock-related maneuver, known as the free issue of new shares, allows companies to issue new, additional shares without any financial outlay, making themselves an attractive investment.

In addition to the exploitation, the bank’s insiders are suspected to have disseminated the undisclosed information to their relatives, friends, and even colleagues in other bank departments.

Their collective actions reportedly yielded gains of approximately 6.1 billion won through stock trading. In total, the profits derived from undisclosed information were estimated at 12.7 billion won.

“The exploitation of undisclosed information by bank employees in charge of securities agency operations is a grave issue that has the potential to erode trust within the capital market,” said an official from the financial authority.

KB Kookmin Bank had faced a similar controversy two decades ago when it was accused of unfair trading involving undisclosed information.

In September 2003, the Securities and Futures Commission, under the Financial Services Commission (FSC), filed a complaint against the bank and its officials.

Allegedly, the bank sold 7.28 million shares of SK Securities Co. shortly before the brokerages’ resolution of capital reduction to evade a potential loss of 2.8 billion won.

However, due to insufficient evidence, the prosecution eventually dropped the charges.