[Asia Economy Reporter Lee Jung-yoon] The Financial Services Commission announced on the 1st that the Securities and Futures Commission under its jurisdiction took action against 57 individuals and 51 corporations for a total of 36 cases of unfair trading in the first half of this year.
According to the FSC, among the 36 cases handled by the Securities and Futures Commission, violations of disclosure obligations accounted for the largest portion with 15 cases. This was followed by 6 cases of insider trading using undisclosed material information, 5 cases each of fraudulent trading and violations of short-selling regulations, 4 cases of market manipulation, and 1 case of market disorderly conduct. The Securities and Futures Commission took measures including prosecution referral/notification (55 individuals, 11 corporations), fines (1 individual, 29 corporations), administrative penalties (11 corporations), and warnings (1 case).
Over the past five years, insider involvement cases, including executives and employees of listed companies, have consistently appeared among unfair trading incidents. According to notifications of unfair trading from the Korea Exchange Market Surveillance Committee, the proportion of insider involvement in listed corporations was 51.1% in 2017, 69.5% in 2018, and 74.8% in 2019. Although it decreased to 62.6% in 2020, it rose again to 69% last year.
The FSC also disclosed major cases handled by the Securities and Futures Commission and related precautions. Executive B of KOSDAQ-listed company A was involved in generating information by deciding on a shareholder allotment rights offering for the purpose of repaying borrowings, which was adverse undisclosed information, and attending meetings with the lead manager. B also reported the main contents of the shareholder allotment rights offering at an executive meeting. Three executives of company A who attended the meeting anticipated a stock price drop after disclosure and sold their holdings of company A shares before the information was made public to avoid losses. Accordingly, the Securities and Futures Commission filed charges against B for violating the prohibition on using undisclosed material information and notified investigative authorities regarding the three executives.
In addition, cases were introduced where executives and employees of other KOSDAQ-listed companies were charged with insider trading for concentrating stock purchases through their own and spouses’ accounts before the disclosure of favorable undisclosed information, thereby receiving unfair gains.
Furthermore, a case of violation of the obligation to submit securities registration statements related to associations was disclosed. Issuer C issued 100 billion KRW worth of bonds with warrants (BW) to a total of 65 people including 7 associations but failed to submit a securities registration statement. The Securities and Futures Commission imposed a fine on C for violating the Capital Markets Act.
A case of violation of the large shareholding reporting obligation related to associations also emerged. Association D under civil law participated in a third-party allotment rights offering and acquired shares, triggering the obligation to report large shareholdings, but delayed the report and was fined. During the Securities and Futures Commission’s review, it was pointed out that civil law associations lack corporate personality and their substance disappears upon termination of the association contract, reducing the effectiveness of sanctions. Accordingly, the Securities and Futures Commission decided that in future violations of shareholding disclosure related to civil law associations, the subject of action will be the members of the association rather than the association itself, principally sanctioning the representative reporter, but also sanctioning other members if clear negligence is recognized.
Finally, a case of violation of the obligation to submit a major event report related to convertible bonds (CB) was introduced. Listed company E’s board of directors decided to issue CBs and submitted a major event report. However, the report omitted important details such as the fact of collateral provision agreements, and the Securities and Futures Commission imposed a fine.
The FSC explained, "Omitting the fact of collateral provision when issuing effectively secured CBs, as if they were unsecured, creates the appearance that the CB issuance succeeded solely on the company’s credit, influencing investors’ investment decisions. When issuing CBs, if there are matters that significantly affect investment decisions, such as agreements to provide collateral to bondholders, detailed information must be included in the major event report."
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