The Financial Supervisory Service urged investors to use caution, saying that as most domestic listed companies enter the December settlement of account period, attempts at unfair trading to exploit settlement of account information or to avoid disadvantages from settlement of account results could concentrate early each year.
On the 27th, the Financial Supervisory Service (FSS) released materials titled "Guidance on cautions regarding unfair trading related to settlement of account and intensive monitoring plan," noting that 79.1% (19 cases) of unfair trading cases related to settlement of account over the past three years (19 companies, 24 cases) were concentrated from January to March. The remaining unfair trades also occurred in the third quarter (July to September), when semiannual reviews were underway.
By type of unfair trade, use of undisclosed information was the most common with 16 cases (67%). It was followed by fraudulent trading (6 cases, 25%) aimed at preventing delisting or forced sales of collateralized shares, and market manipulation (2 cases, 8%).
The companies in question faced cash shortages due to long-term deteriorating results or a shift to losses just before the unfair trades, and pursued large-scale fundraising such as rights offerings and issuance of convertible bonds or pushed new businesses, or moved to change the largest shareholder and management. The Financial Supervisory Service (FSS) said these red flags indicate that large shareholders and executives are abusing the company's circumstances as a means to pursue private interests rather than resolving them.
For example, A, the largest shareholder and CEO of a listed company, learned in the course of duties around February of an audit opinion refusal caused by worsening cash conditions, and before the information was disclosed, sold all owned shares through an account in the person's own name and a borrowed-name account to avoid losses.
In another case, B, the de facto owner of a listed company, took out a loan from a financial company using the company's own shares held by related parties as collateral. Early the next year, as the stock price fell on rumors of a non-unqualified audit opinion and the likelihood of forced selling increased, B provided market-manipulation funds and securities accounts to a company executive and brokerage employees to rig the stock price.
There are also cases of fraudulent trading that falsely boosts equity capital just before the settlement of account date arrives. Listed company C faced concerns about designation as an issue under management due to five consecutive years of operating losses and a substantive delisting review due to repeated fundraising failures. In response, C's CEO conducted a third-party allotment rights offering and falsely replenished capital by supporting participants with funds embezzled from C.
The Financial Supervisory Service (FSS) plans to focus monitoring on stocks with a high likelihood of unfair trading, such as non-unqualified audit opinions or delayed submission of audit reports.
Executives and major shareholders of listed companies must disclose a trading plan at least 30 days before the scheduled trading date when transacting shares and the like above a certain size. Violations may be subject to sanctions, including a penalty surcharge of up to 2 billion won.
An official at the Financial Supervisory Service (FSS) said, "If suspicions are found, we will root out the participants and ensure swift and stern action," adding, "We will also strengthen preventive efforts by sharing related systems, regulations, and violation cases mainly with KOSDAQ-listed company employees and executives."