[La Deok-yeon Gate] Eight Stocks Hitting Lower Limit Lose 8.4 Trillion Won in Market Cap in 3 Weeks

Seoul Gas, Samchully, and 6 Other Stocks Record Average 65% Drop
Final Verdict on Stock Manipulation Gang May Take Years
Civil Lawsuits Usually Proceed Based on First Criminal Trial Results

The stock price manipulation scandal involving CEO Ra Deok-yeon and his group, which has shaken the domestic stock market, has entered its fourth week. The eight stocks targeted by Ra's group, including Seoul Gas and Samchully, are still recording an average decline of 65% compared to before the incident. During this period, more than 8.4 trillion won in market capitalization has evaporated. CEO Ra was arrested last week. However, it may take several years to prove the charges against the stock price manipulation group and reach a final verdict, making it difficult for victims to receive compensation in the near future.

According to the Korea Exchange Information Data System on the 15th, the total market capitalization of the eight stocks involved in this incident?Seoul Gas, Daesung Holdings, Samchully, Harim Holdings, Dow Data, Seonkwang, Sebang, and Daol Investment & Securities?shrank from 12.1949 trillion won on April 21, just before the incident, to 3.7216 trillion won on May 12. In just three weeks, 8.4732 trillion won disappeared.

The stock prices of these companies plunged sharply immediately after the incident and have not recovered. Seonkwang's stock price fell about 83%, from 167,700 won (closing price on April 21) to 29,200 won (closing price on May 12). During the same period, Daesung Holdings' stock price dropped about 82%, from 130,100 won to 24,050 won. Although some individual investors attempted short-term rebounds after consecutive lower limit hits, resulting in temporary price recoveries, these did not last long. The average decline rate for all eight stocks was about 65%.

Relatively speaking, Daol Investment & Securities fared better, with its stock price falling about 23%, from 5,180 won to 4,010 won. Although Daol Investment & Securities' stock price once dropped as much as 50% compared to before the incident, it partially recovered after an individual investor made a large purchase of shares. On May 9, Daol Investment & Securities disclosed through the Financial Supervisory Service's electronic disclosure system that businessman Kim Ki-soo (65) and his special related parties newly acquired a total of 11.5% stake.

Looking at the trading trends by investor type for each stock, individual investors bought large amounts of shares in these stocks, aiming for a temporary rebound after the stock prices plunged due to consecutive lower limit hits in the early stages of the incident. From April 24, when the first lower limit incident occurred, individual investors net purchased these stocks (combined for all eight stocks) for eight consecutive trading days. By May 12, the total transaction amount purchased by individual investors reached 302.33 billion won. In contrast, institutional and foreign investors were busy selling off the problematic stocks. Over the three weeks since the incident, institutions net sold 161.983 billion won, and foreigners net sold 149.341 billion won.

This case is understood to involve the use of 'matched orders,' an illegal trading method where CEO Ra received personal information such as securities accounts and certificates from investors, prearranged buying and selling prices, and traded stocks accordingly. It is an illegal transaction with prearranged prices. With CEO Ra's arrest, the prosecution's investigation is expected to gain momentum. However, it will take time until the charges are proven and a legal judgment is made. Since stock prices have already fallen significantly, compensation for ordinary investors who are completely unrelated to the incident will also take time.

Attorney Kim Kyu-hyun of Pyeongan Law Firm explained, "Basically, in fraud cases involving market manipulation, the perpetrators must compensate for the damages," but added, "Often, if the criminals do not voluntarily compensate, collective civil lawsuits are filed." However, he noted, "In reality, the damages are enormous, but the money left in the hands of the criminals is often insufficient," adding, "Even if lawsuits proceed, it will be difficult for victims to receive full compensation."

Even if the victims pursue a class-action lawsuit, it is expected to be difficult in the short term as they must wait for the progress of the prosecution's investigation. A financial investment industry official said, "(Prosecution investigations and lawsuits) can proceed simultaneously, but in civil lawsuits, victims must directly prove the fraud damage, which is not an easy matter," adding, "Realistically, they have to wait for the investigation results, and usually, civil lawsuits proceed based on the first trial results of the criminal case."

※ This stock price crash incident triggered by SG Securities is sounding an alarm for the capital market order. Readers' reports will be a great help in uncovering the truth. We welcome any reports regarding investment damage cases, suspicions of stock price manipulation and asset concealment by Ra Deok-yeon’s group, details about the large-scale sales by major shareholders of Dow Data and Seoul Gas, or any other related information (jebo1@asiae.co.kr). Asia Economy will do its best to establish a transparent capital market order.