Unfair Gain of 200 Million KRW from Front-Running... Capital Market Special Investigation Unit Refers Stock Leading Room Operator to Prosecution

[Asia Economy Reporter Lee Jung-yoon] An operator of a stock leading chatroom who obtained unfair profits amounting to 200 million KRW through front-running has been referred to the prosecution.

The Capital Market Special Judicial Police of the Financial Services Commission announced on the 29th that they have sent Mr. A, the operator of a stock leading chatroom suspected of front-running, to the Seoul Southern District Prosecutors' Office. A stock leading chatroom refers to a group chatroom operated by a pseudo-investment advisory business operator, where the operator shares investment information such as recommended stocks expected to rise and timing for buying and selling.

Mr. A is accused of repeatedly engaging in front-running by purchasing 15 stocks in advance, recommending them to members of the stock leading chatroom, and selling them when the stock price rose due to members' purchases, thereby obtaining unfair profits. It was investigated that Mr. A repeated front-running about 100 times over three months, earning trading profits ranging from several million to tens of millions of KRW each time, with the total unfair profits reaching 200 million KRW.

The act of a stock leading chatroom operator purchasing specific stocks in advance without informing members, encouraging members to buy those stocks, and using employees of the stock leading chatroom company as 'wind catchers' to create a buying atmosphere constitutes a violation of the Capital Markets Act.

This case was initially under investigation by the Capital Market Investigation Team of the Financial Services Commission, but to actively respond to victims caused by illegal leading chatroom operations, the investigation was transferred to the Capital Market Special Judicial Police after review by the Special Judicial Police Investigation Deliberation Committee. Typically, cases involving front-running take more than one to one and a half years from the start of investigation to completion, but this case was completed in about eight months, demonstrating the efficiency of direct investigation by the Capital Market Special Judicial Police.

A Financial Services Commission official explained, "During the operation of stock leading chatrooms, various types of illegal and unsound business practices may exist, such as inducing payment of high fees through false and exaggerated advertisements about returns and providing illegal advisory and discretionary services. However, acts like front-running linked to recommendations of specific stocks by so-called stock experts are very difficult for general investors to detect."

He added, "There is a possibility that the stock recommendation process is not objective and rational but rather a recommendation of stocks pre-accumulated by specific individuals or groups, so investors need to exercise careful attention. The financial authorities will make every effort to protect investors by promptly investigating unfair capital market trading offenses that pose significant risks to general investors, as in this case."