'Lousy' system caused fat finger scandal at Samsung Securities

By Jhoo Dong-chan

Samsung Securities' fat finger scandal was caused by the firm's lack of a monitoring system and contingency plan, said the Financial Supervisory Service (FSS). The agency also pointed out the moral laxity of its employees who immediately sold their shares after the securities firm mistakenly gave them about 2.8 billion shares instead of 2.8 billion won in dividends.

The Financial Supervisory Service (FSS) also said Samsung Securities has placed 72 percent of its computer system orders with Samsung SDS. The total contracts are worth about 251.4 billion won ($233.2 million). Samsung SDS is the securities firm's affiliate, which the FSS said has monopolized Samsung Securities' orders without a proper documentation process over the past five years, the FSS added.

The fat finger scandal took place on April 5 when Samsung Securities mistakenly gave about 2.8 billion shares to its workers who own company stock when it was supposed to pay 2.8 billion won in dividends.

Although Samsung Securities has issued only 890 million shares in the market, the system approved giving 2.8 billion shares anyway. The brokerage reportedly updated its computer system in January, but did not conduct a test drive to uncover possible errors.

The FSS also said the employees in charge did not realize their mistake until the market opened the following day.

Of those 2.8 billion shares worth 110 trillion won, 22 employees placed orders to sell 12.08 million shares immediately after the market opened on April 6. Of them, 16 employees managed to sell 5.01 million shares, escalating the unprecedented mishap.

Due to the sudden sales rush, Samsung Securities shares nosedived by 11.68 percent to 35,150 won per share an hour after the market opened at 9 a.m. The Korea Exchange also issued a sidecar ― a temporary halt when a sudden fluctuation either up or down occurs ― on trading shares of Samsung Securities.

The FSS also pointed to the brokerage's lack of a contingency as the firm failed to immediately suspend sales of the 2.8 billion shares. For about an hour after the market opened on April 5, 16 workers managed to sell 5.01 million shares.

The brokerage's leading analyst was also found to be one of those workers who sold the shares. The unnamed analyst, who was supposed to receive 784,000 won ($734) in dividends, reportedly got 784,000 shares instead. The analyst immediately sold the shares worth more than 30 billion won on the day, according to sources.

The FSS said it will soon hold an in-house committee meeting to discuss a possible penalty for Samsung Securities, and experts said the penalty could suspend the brokerage's business for a certain period of time.