By Kim Tae-gyu
Staff Reporter
A pair of Korean investors is suing the Royal Bank of Canada (RBC), claiming that it had caused them losses through exotic financial products dubbed equity-linked securities (ELS).
Hannuri Law Offices, which represents the two plaintiffs, said Friday that it had filed a suit with the Seoul Central District Court against the RBC for 3.2 billion won (around $2.8 million) in damages.
This is the first class action here against any foreign-based financial entity, according to the Seoul-headquartered law firm.
“We filed a class action on behalf of 437 investors who suffered financial losses because of the ELS involving the RBC in early 2009. If the two plaintiffs win the case, others will also be able to claim damages,” Hannuri lawyer Rha Seung-chul said.
“We suspect that the RBC attempted to manipulate stock prices so that they could rake in profits at the expense of the Korean investors. We think that we have a shot at winning the case.”
The ELS in question were issued by the RBC and were offered on the local market in April 2008 by Hanwha Securities.
The derivative product promised a 22 percent return in one year if both of its two underlying equities ― SK Corp. and POSCO ― closed at 75 percent higher than their original prices.
Should either finish below 75 percent on the due date in April 2009, investors would take losses amounting to the difference between the initial price in 2008 and the closing price a year later.
On April 22 last year, the expiration date, POSCO’s value hovered at over 80 percent of its original price and SK Corp. also traded above the 75 percent plateau.
However, SK Corp. share prices plunged at the last minute to close at 119,000 won, due mainly to 130,000 of its shares being released onto the market in a last 10-minute call auction.
Rha said the RBC sold the SK shares and this caused the value to dip below the 75 percent mark so that investors faced 25 percent losses instead of 22 percent profits.
“We strongly suspect that the RBC put out sell orders at lower prices than traded on the market in order to artificially lower the SK share values below the 75-percent level,” Rha said.
“We cannot check whether or not the RBC intentionally sold SK stocks at lower prices as we have not been allowed to see the data. Any doubts should be cleared up during the court case by accessing such data.”
In response, Hanwha Securities said the RBC seemingly sold SK stocks to garner funds to return to the buyers of the ELS rather than trying to manipulate the prices.
It is not certain which side will win but the case has certainly changed one thing ― the government revised the relevant regulations to preclude any similar controversy down the road.
The closing price of the ELS will be replaced by either the average price over the last three days before expiration, or the weighted average price of due data under certain conditions.
Under the new rule, any last-minute change of the underlying assets’ value has little effect on the standard price.
voc200@koreatimes.co.kr