By Kim Da-ye
Two former employees of the Hong Kong branch of the Zurich-based Credit Suisse face trial on charges of profiteering from stock price manipulation.
The two were charged with investing in struggling firms to boost their stock prices and selling borrowed shares from those companies at higher prices, the Seoul Central District Prosecutors’ Office said. It would be the first trial of employees of a foreign-based investment firm.
Prosecutors, who often find it difficult to investigate, charge and put to trial foreign suspects because they won’t answer summons, managed to collect enough evidence in this case.
The indictment also provides a clue to the case of Deutsche Bank’s securities unit that was criminally charged with manipulating stock prices on the exercise date of the option contracts on Nov. 11 last year.
The Korean financial regulator found that Deutsche Bank was responsible for the drop in the stock price caused by a massive sell-off of shares, and banned it from trading stocks and derivatives for its account. It was also hit with a record fine of 1 billion won by the Korea Exchange (KRX).
As the regulator reported several Deutsche Bank officials to the prosecutors, the investigation has opened. But none is known to have answered the summons.
In the Credit Suisse case, the prosecutors said that the indicted officials bought overseas convertible bonds (CBs) worth 100 billion won between April 2005 and May 2006 issued by 12 KOSDAQ-listed companies on the condition that they secretly borrow the companies’ shares from the major shareholders.
The news that the established foreign institution invested in those firms boosted the stock prices as expected. The former Credit Suisse officials then sold off the borrowed shares at good prices, making unfair profits estimated to be 23.6 billion won.
Two employees of the Seoul-based Kyobo Securities are also charged with collaborating with Credit Suisse at the fee of 3.4 billion won.
Four out of 12 KOSDAQ-listed companies became delisted, causing losses to investors.
According to Yonhap, when issuing convertible bonds, the companies did not inform the Financial Supervisory Service (FSS) that it was lending shares to Credit Suisse.
The major shareholders also falsely disclosed that they were lending shares to Kyobo Securities, not to the Zurich-based financial company.
In order to avoid disclosing the ownership of the shares, Credit Suisse allegedly set up eight special-purpose companies to split and sell the borrowed shares.