A former investor has been arrested for allegedly manipulating the stock price of a KOSDAQ-listed company for over three years, amassing illicit profits of approximately 6.2 billion KRW (around $4.5 million USD). The suspect reportedly raised funds by borrowing money from acquaintances met at social gatherings, including wine clubs, and from individuals involved in cryptocurrency and precious metal trading. Authorities believe these borrowed funds were then used to orchestrate the stock price manipulation scheme.
Allegations of Market Manipulation Uncovered
The Seoul Southern District Prosecutors’ Office, Financial Investigation Unit 1, announced on the 18th that they had arrested a 35-year-old former investor, identified as ‘A’, on charges of market manipulation and illicit gains, violating the Capital Markets Act. A 36-year-old fellow investor, ‘B’, was also taken into custody without detention under similar charges.
According to the investigation, from January 2020 to May 2023, a period spanning three years and five months, suspect ‘A’ allegedly placed approximately 15,908 orders to manipulate the stock price of KOSDAQ-listed company ‘C’. During this time, the stock price of company C surged dramatically, climbing from 11,800 KRW to 45,800 KRW per share. Investigators estimate that suspect ‘A’ profited around 6.2 billion KRW from these alleged illicit activities.
Fundraising Through Social Connections and High Leverage
Suspect ‘A’ is alleged to have approached approximately 26 individuals, including businessmen and doctors whom he met at exclusive wine and dining events. He reportedly enticed them to invest by promising to share investment profits. Through these connections, ‘A’ is said to have secured hundreds of millions of KRW, along with control over 47 securities accounts and 6 contracts for difference (CFD) accounts. Furthermore, he is accused of borrowing an additional 12 billion KRW from cryptocurrency and precious metal traders.
With the total funds raised, estimated at 74.5 billion KRW, suspect ‘A’ allegedly leveraged additional capital through credit loans and stock-backed financing. This allowed him to purchase a substantial amount of company C’s stock, reportedly reaching over 340 billion KRW during the manipulation period. The volume of shares held by suspect ‘A’ and his associates is believed to have increased from around 8% of the total tradable shares to over 40%.
Downfall Due to Excessive Leverage and Market Reversal
However, the excessive use of leverage reportedly put suspect ‘A’ in a precarious position, facing the risk of margin calls from securities firms. In an attempt to mitigate this, ‘A’ allegedly enlisted the help of his friend and fellow investor, suspect ‘B’. He is said to have asked ‘B’ to execute high-priced buy orders and wash trades (simulated trading to inflate volume or price) to maintain the stock’s artificial inflation.
With ‘B’s assistance, suspect ‘A’ repeatedly placed the alleged manipulation orders, accumulating the estimated 6.2 billion KRW in illicit profits. He also reportedly received 1.6 billion KRW from the individuals who entrusted him with their funds and accounts as a fee for managing their investments.
Ultimately, the aggressive use of leverage proved to be unsustainable. The stock price of company C experienced a sharp decline, halving from its peak of 45,800 KRW to 22,050 KRW within a few days, following margin calls from the brokerage firms. This collapse caused significant financial damage to retail investors who had been drawn into the market by the artificially inflated stock price.
Company Background and Suspect’s Lavish Lifestyle
Company C, the KOSDAQ-listed entity at the center of the alleged manipulation, specializes in designing and manufacturing systems for the transportation of bulk materials, such as coal, through pipes. It was listed on the KOSDAQ in December 2009, and its stock price once reached a high of 51,100 KRW.
During the period of alleged illicit gains, suspect ‘A’ is reported to have lived a lavish lifestyle. He resided in a high-end villa and reportedly spent up to 30 million KRW per month on credit card bills. He is also accused of using his illicit earnings to fund his girlfriend’s luxury spa business and cover her living expenses.
Evidence Gathering and Further Investigations
Investigators reportedly gathered substantial evidence through searches and seizures. In an effort to conceal his activities, suspect ‘A’ allegedly deleted Telegram chat logs and instructed those who entrusted him with funds to provide false testimonies to investigators.
A source involved in the investigation commented, “This case involves a victim who cultivated an image of a ‘successful super-rich investor’ and then, using funds and accounts borrowed from acquaintances, engaged in long-term stock price manipulation under the guise of long-term investment, exploiting leverage.”
The investigation is ongoing, with authorities looking into the full extent of the alleged market manipulation and the involvement of other parties. The collapse of company C’s stock price has left many small investors facing severe losses, highlighting the risks associated with high-leverage trading and market manipulation schemes.
