By Kang Seung-woo
Deutsche Bank is not cooperating with Korean prosecutors in their investigation into a stock-market manipulation that took place Nov. 11 last year.
In response, the prosecutors have indicted four employees of Deutsche Bank’s branch in Hong Kong without physical detention, having confiscated 44.87 billion in illegal profits. The four repeatedly refused to comply with the summons.
Now, with the prosecutors having established legal grounds for Deutsche’s culpability, stock investors who lost their money are following with their own legal action.
Deutsche’s repeated rejection of summons only strengthens suspicions about the allegations, raising questions about its fitness as a player in the financial markets.
Victims are filing a compensation suit to the tune of 56.7 billion won, separately from a 76-billion-won suit initiated by two institutional investors.
The Germany-based lender ordered its Seoul unit to place massive sell orders of 2.4 trillion won during the closing minutes of trading to trigger the Korea Composite Stock Price Index (KOSPI) to drop 2.79, wiping out $26 billion in market value. The Financial Services Commission made the announcement in February this year and banned it from proprietary stock and derivatives trading here for six months.
According to the Seoul Central District Persecutors’ Office, officials from its Hong Kong office assumed a major role in the impropriety and Deutsche Bank’s local brokerage unit, Deutsche Securities Korea (DSK), and its official played second fiddle en route to illegal gains from put-option transactions.
“It is a disappointing moment that Deutsche Bank does not live up to its title as a global IB when its employees don’t respond to prosecutors’ summons. The judicial branch needs to take punitive action if there was any wrongdoing in Deutsche’s trading on that day,” a Seoul-based economist said on condition of anonymity.
The global bank operates in 73 countries with more than 100,000 employees.
As a matter of fact, after the indictment, to its disappointment, Deutsche Bank simply continued to deny the charges, saying “DSK has every confidence in the Korean judicial system and that it will be cleared of the allegations.”
There is a growing call for financial authorities to explore harsh punitive options including kicking the unit out of the local financial markets in an effort to prevent any illegal stock market trading from reoccurring.
“Unlike Deutsche Bank’s statement, it cannot be seen as a matter of a small number of coveted employees. It is not a small issue,” the analyst said.
The local stock market has fallen victim to foreign big-budget investors thanks to slack regulations and after the so-called “option shock,” the financial authorities came up with plans to strengthen requirements on derivatives trading.
It is still questionable if the new requirements are enough to protect it from those improprieties.
Since Financial Services Commission (FSC) Chairman Kim Seok-dong and Financial Supervisory Service (FSS) Governor Kwon Hyouk-se took office this year, they have stressed market transparency and fair practices, promising no mercy for offenders.
And the time has come for the underachieving chiefs to live up to their billing, putting DSK on the line.
“Currently, many foreign banks operate excessively in Korea and they manipulate the market. Although one global bank is removed, the local financial market will not be seriously affected,” he said.