Regulator to Beef Up Monitoring of Stock Price Rigging
By Lee Hyo-sik
Staff Reporter
The Financial Supervisory Service (FSS) said Sunday that it will set up a six-member special investigation unit to strengthen its monitoring of stock price rigging, insider trading and other irregularities.
The regulator is currently grappling with a backlog of enquiries into suspected stock price manipulation and other types of illicit schemes, which have become more sophisticated and harder to detect.
The number of suspected unfair stock trading cases filed with the FSS totaled 168 as of the end of September 2009, up sharply from 123 in 2008 and 101 in 2007. Most incidents involve large shareholders of small-cap Kosdaq market listed shares.
Some of the typical stock price riggings involve majority shareholders of listed firms spreading unfounded rumors to boost share prices, encouraging investors to buy stocks. When the price goes up, the manipulators sell the shares to realize huge capital gains. But the investors sustain huge losses from the falling share price afterwards.
Large shareholders and those who are well-connected also purchase certain shares on insider information. Stock prices surge when the information is made public. They then cash out their investment and make handsome profits.
The FSS said the newly-established unit will place priority on examining a host of major unfair stock trading in the past. It will also closely cooperate with the Korea Exchange (KRX), prosecutors and other related law enforcement authorities to more effectively probe irregularities.
The regulator has been criticized for its inadequate handling of such matters as it refers the cases to law enforcement authorities after obtaining a consensus from the Financial Services Commission (FSC). The practice has made it almost impossible for the FSS to deal with the problem in a timely manner.
``We need a search and seizure warrant or the freezing of bank accounts against suspects of those manipulating stock prices and committing other irregularities at an early stage of the investigation. Through the special investigative unit, we will more closely cooperate with prosecutors and the KRX,'' an FSS official said.
He said the FSS will do everything within its power to prevent investors from suffering from losses by preemptively probing possible stock price rigging and taking necessary measures in advance. ``To strengthen the monitoring and the punishment of those involved in unfair stock trading, we will introduce a scheme to take back profits gained illegally, and confiscate suspects' phone records and IP addresses.''
The FSS said it will combine the supervision of derivatives and financial instruments, including equity funds and retirement pension products, sold by banks, brokerage houses and insurers. Currently, it is overseeing business practices and sales of financial products by individual sector.