As cases mounted of siphoning off funds after luring investors with overseas unlisted stock investments and proxy applications for initial public offerings, the Financial Supervisory Service issued a consumer alert. It emphasized that receiving investment funds into a company-name account to manage them or acting as a proxy for IPO subscriptions is illegal even for licensed financial firms.
The Financial Supervisory Service (FSS) said on the 23rd in a consumer alert that it has received numerous reports in which some investment advisory firms and asset management companies raised investment funds under the pretext of overseas unlisted stock investments or acting as a proxy for IPO subscriptions and then failed to pay back principal and revenue.
In a prominent case, investment advisory firm A recruited investors by saying it had an exclusive contract with a global investment company to offer opportunities to invest in overseas unlisted stocks. The firm promoted that the investment funds could grow three to five times in three years, but no actual overseas unlisted stock investment records were verified. Instead, it was found that part of the funds was used to acquire equity in affiliated companies. Investors were reportedly unable to check actual investment records in the mobile application (app) and were not provided with a contract.
In another case, asset management company B and investment advisory firm C attracted funds by promoting that they could generate high revenue by acting as a proxy for IPO subscriptions in the name of institutional investors. They signed contracts stating they would participate in IPO subscriptions under the company's name and split the revenue with investors, and they received money into company accounts. Initially, they paid out part of the revenue to build trust, then induced reinvestment by presenting false IPO allocation details and revenue settlement materials, and it was found that they harmed investors by cutting off contact with those who demanded refunds or by delaying returns.
The Financial Supervisory Service (FSS) explained that such acts are illegal under the Financial Investment Services and Capital Markets Act as unlicensed collective investment business or unlicensed investment brokerage. Investment advisory firms can only recommend stocks or advise on investment strategies; they cannot directly receive or manage investment funds, and discretionary investment assets must also be managed from accounts in the investor's own name.
It especially urged caution, noting a high likelihood of illegality if an advisory or management firm asks that funds be wired to a company-name account. It also stressed that when entering into financial contracts through electronic means such as mobile apps, investors must verify whether a contract is provided and confirm its terms.
The Financial Supervisory Service (FSS) said, "Some advisory and management firms are deceiving investors by exploiting the fact that they are licensed financial companies," and added, "We will conduct inspections in the second half of the year on firms with strong signs of illegal business practices, and if violations are detected, we will immediately notify investigative authorities."