An overview of the case in which suspects acquired control of a Kosdaq-listed company with no capital of their own, then artificially inflated its share price through market manipulation. [Seoul Southern District Prosecutors' Office]
An overview of the case in which suspects acquired control of a Kosdaq-listed company with no capital of their own, then artificially inflated its share price through market manipulation. [Seoul Southern District Prosecutors' Office]

A group of suspects has been indicted for acquiring control of a Kosdaq-listed company without using any of their own capital and then manipulating its share price to pocket about 5.7 billion won ($3.99 million) in illicit gains.

The Seoul Southern District Prosecutors' Office said Wednesday that the former largest shareholder and chief executive of the listed company, identified only as A, and a professional stock manipulator identified as B were indicted in custody on charges of violating the Capital Markets Act. A former inside director of the company's subsidiary, identified as C, was indicted without detention on the same charges.

Prosecutors said the suspects recruited investors, acquired the listed company without contributing any capital of their own, then artificially drove up its share price to generate illicit profits.

The ringleader, A, began recruiting financial investors in March 2017, promising to guarantee the return of their principal and pay out 70 percent of any profits. Using shares in the target company as collateral, A secured loans of 14.5 billion won and raised enough funds in total to acquire a 19.96 percent controlling stake — 1,636,364 shares — for 18 billion won.

Prosecutors found, however, that A had planned the manipulation scheme to prevent margin calls on the share-backed loans taken out during the acquisition and to pay investors the returns he had promised them.

A commissioned B through inside director C to carry out the manipulation. The funds provided to B for the scheme exceeded 3 billion won.

B then repeatedly submitted price-rigging orders for the company's shares using multiple nominee brokerage accounts. Prosecutors determined that between May 15 and July 10, 2017, the suspects placed a total of 30,221 manipulative orders, including 6,899 high-price buy orders and 20,371 volume-exhaustion orders.

The manipulation sent the share price sharply higher in a short period. The stock closed at 14,200 won on May 12, 2017, and climbed to 20,100 won by May 26 — a gain of about 41.5 percent in just two weeks. Prosecutors concluded that the defendants reaped approximately 5.7 billion won in illicit gains through the scheme.

The investigation also found that A had been directly or indirectly involved in several other zero-capital mergers and acquisitions. B had previously been sentenced to prison for the same type of offense and rejoined a manipulation scheme after his release.

"We will respond firmly to financial and securities crimes that undermine the fairness and integrity of the capital markets, and work to establish transparency, soundness and fairness in those markets," a Seoul Southern District Prosecutors' Office official said.


newday@heraldcorp.com