Tax authority launches probe into 27 firms behind stock manipulation

Min Ju-weon, deputy commissioner of the National Tax Service's investigation bureau, speaks to reporters at Government Complex Sejong, Tuesday. Yonhap

The National Tax Service (NTS) said Tuesday it has launched a rigorous tax investigation into 27 firms involved in stock manipulation and related tax evasion.

The crackdown aims to address the "Korea discount," referring to the undervaluation of Korean stocks caused by unfair market practices.

The investigation is targeting nine firms that issued false disclosures for stock manipulation, eight corporate raiders engaged in pump-and-dump schemes and 10 firms whose controlling shareholders exploited the listed companies for personal gain.

These companies were found to have engaged in sophisticated manipulation schemes to reap massive personal gains while inflicting losses on small investors. Their tax evasion is estimated to total around 1 trillion won ($718 million).

In one case, an individual affiliated with a Kosdaq-listed firm in the biotech and health care sectors disclosed that the firm had secured a major contract worth more than five times its annual revenue. The company's stock price surged eightfold, allowing the individual to realize gains worth hundreds of billions of won.

However, the trading was suspended due to false disclosure and the stock later crashed to one-fifth of its peak value. The NTS has imposed hundreds of billions of won in back taxes on the individual and referred the case to law enforcement for criminal investigation.

Also under investigation are controlling shareholders of listed companies who treated the firms like personal property. These individuals directed companies controlled by their children to purchase shares ahead of strong earnings announcements. When the share prices rose following the disclosures, the children's companies sold the shares at a profit.

Another case involved the transfer of corporate control at an unfairly low cost by artificially inflating the value of shares in a company owned by the individual's child, then exchanging those shares for stock in a company he controlled. Investigations revealed that the individual's children underreported the value of inherited assets by about 92 percent.

The NTS explained that these unfair practices severely undermine the integrity of a fair capital market and have a negative impact on the economy.

"The ultimate beneficiaries who concealed assets under others' names to finance luxurious lifestyles while evading tax obligations will be thoroughly traced, and all due taxes will be rigorously collected," said Min Ju-weon, deputy commissioner of the NTS investigation bureau.

The investigation, the first large-scale enforcement action under the new administration, aligns with President Lee Jae Myung's stated policy direction. He previously warned that "those who manipulate the stock market will face financial ruin."

On the same day, the ruling Democratic Party of Korea also reaffirmed its commitment to restore public trust in the Korean stock market at a roundtable co-hosted with the Korea Exchange.

"With recent legal reforms, even the principal gains from stock manipulation can now be clawed back. The message is clear: Don't even dream of it," said Rep. Oh Gi-hyung, who leads the party's special committee for KOSPI 5,000.

"We must consistently pursue institutional reforms and signal our determination until the investment landscape in the Korean stock market shifts to 'quick investment wins' (from 'quick escape' gains)."