Stock manipulation ring busted after 9,396 rigged orders sent shares soaring 183%

Gang used 157 nominee accounts over 8 months to inflate Kosdaq-listed Gold&S shares

Police have arrested suspects accused of artificially inflating the share price of a Kosdaq-listed company to pocket billions of won in illicit gains. Officers detected signs of market manipulation while investigating suspected violations of the Financial Real-Name Act and referred all 25 suspects to prosecutors without detention on charges of violating the Capital Markets Act. [AI-generated image]

"We're sending in the trader next Wednesday. Please find a few more accounts we can use to buy. Once the market opens, put in asking prices between 9,600 and 9,650 won."

A large-scale stock manipulation ring — bringing together the chief executive of a Kosdaq-listed company, organized crime members, loan sharks and brokerage employees — has been rounded up by police.

The Seoul Metropolitan Police Agency Metropolitan Investigation Unit said Thursday it had arrested 25 people, including the CEO of a Kosdaq-listed company, on charges of violating the Capital Markets Act's prohibition on market manipulation, and referred them all to prosecutors without seeking detention.

The suspects are accused of using 157 nominee accounts to submit a total of 9,396 manipulative orders in a scheme to artificially inflate the share price of Kosdaq-listed Gold&S.

Gold&S is an online education company acquired in December 2020 by an investment partnership funded by entertainment agency Gold Medalist. Its share price subsequently surged 183% in roughly five months — from 3,690 won on Nov. 4, 2022, to 10,440 won on April 21, 2023 — before collapsing as a wave of sell orders hit the market from late May of that year.

Organizational chart of the criminal network [Provided by Seoul Metropolitan Police Agency]

According to police, the suspects divided responsibilities among themselves — financing, providing nominee accounts and submitting manipulative orders — and carried out the scheme from October 2022 through June 2023.

They executed 841 rounds of wash trading and matched orders to artificially inflate transaction volumes, and placed 2,051 above-market buy orders to drive prices higher. Over roughly eight months, the group bought and sold 31 million shares of Gold&S, generating 120 billion won ($89.8 million) in total transactions.

Once the share price had risen sufficiently, they dumped their holdings in bulk. The two ringleaders who orchestrated the scheme are believed to have pocketed a combined 6 billion won in illicit profits through the manipulation.

The operation drew in a wide cast of participants beyond the Kosdaq company's CEO, including organized crime figures, loan sharks and brokerage employees.

Centered on the two ringleaders, the group divided tasks — supplying and managing nominee accounts, placing trade orders and controlling the float. A lead trader connected to both ringleaders managed the share price and directed multiple order handlers to execute trades, steering the market price.

Police first detected signs of the manipulation around October 2022 while looking into suspected Financial Real-Name Act violations. The scheme began to unravel when one of the traders involved sold a large block of shares near the peak, triggering a flood of sell orders that sent the stock to its daily lower limit for four consecutive trading sessions.

In connection with the market manipulation allegations, police conducted search and seizure operations at Korea Exchange and at the suspects' residences and offices, and secured evidence through account tracing. They ultimately identified all 25 participants in the organized manipulation scheme and referred them to prosecutors without detention.

"We will respond firmly and strictly to acts that disrupt capital market order by exploiting the losses of ordinary investors to reap enormous illicit gains," a police official said.

The Capital Markets Act designates market manipulation, use of undisclosed information and fraudulent trading as three major forms of unfair market conduct and prohibits all three. Under the law, illicit gains of 500 million won or more but less than 5 billion won from market manipulation carry an aggravated sentence of at least three years in prison, while gains of 5 billion won or more are punishable by life imprisonment or a minimum of five years behind bars.

kido@heraldcorp.com