By Kim Jae-won
The prosecution said Tuesday that it has arrested 16 former and current stock brokers from 10 brokerage houses, including a U.S. citizen from Goldman Sachs, for their alleged stock price manipulation in block deals.
Stock brokers from Daiwa Securities’ Seoul office, KDB Daewoo Securities and KB Investment & Securities are included on the list, according to the Seoul Southern District Prosecutors’ Office. A block deal is a single transaction between two parties that are mostly institutional players.
Investigators suspect the brokers took illegal gains worth hundreds of millions of won each by selling major shareholders’ stakes in listed companies to institutional investors in block deals before the stock prices plunged using internal information.
The brokers are also suspected of increasing stock prices intentionally by spreading false rumors about the companies. Later, they allegedly took gains by selling them through block deals.
The list of brokers arrested by the prosecution include a former Goldman Sachs Asset Management Korea executive surnamed Kim, a former executive of Daiwa Securities’ Seoul office, a KB Investment & Securities director named Lee, another KB manager named Kim and a KDB Daewoo Securities manager, according to the prosecution.
Kim left Goldman Sachs in 2012 as the U.S. firm announced it would close its asset management unit in Korea due to its poor performance. It is in its final stages of closing down the office here
Moon Myung-kwan, a former CEO of Infovine, allegedly ordered KB manager Kim to sell his 14.7 percent stake in the mobile security company through a block deal. The prosecution said it was sold at 132 million won with help from KB director Lee and the KDB Daewoo manager.
Moon gave Kim 690 million won for the deal and he paid Park 100 million won and the KDB Daewoo manager 130 million won, according to the prosecution. Infovine is listed on the KOSDAQ.
The arrests came after the prosecution raided the brokerage houses over their alleged stock manipulation. Investigators collected documents from Goldman Sach’s Seoul office, ING Life Insurance and Macquarie Investment Management Korea in August, followed by Daiwa Securities’ Seoul office in September. Earlier this month, they raided KDB Daewoo and KB.
Market watchers said stock manipulations through block deals can damage individual investors who know nothing about what is happening between institutional investors. Shares of Infovine dropped 14.9 percent after investors in the company were notified of the deal in July, inflicting losses on retail investors.
Industry sources said that the prosecution is seeking to crack down on white-collar crimes.
“The prosecution seems to be looking into a wide range of white-collar crimes in Korea with the investigation,” said an executive of a foreign investment bank, asking not to be named.
The investigation team, headed by senior prosecutor Kim Hyung-joon, consists of some 40 officials, including specialists from the financial regulator, the tax agency and the stock exchange operator.