[Inside Chodong] Kiwoom Securities’ Response to the CFD Scandal Only Fueled Controversy

Kiwoom Securities CEO Defends Owner Amid SG Securities Stock Crash
Damaging Only the Reputation of Daou Kiwoom Group
Investor Trust Grows Cold

The follow-up response and attitude of financial company owners or CEOs toward financial consumer damages affect the company's reputation and trustworthiness. There are many cases where trust declines due to poor follow-up measures based solely on "moral responsibility," even when the direct fault or responsibility for the financial accident is not significant. Hwang Hyun-soon, CEO of Kiwoom Securities, faced heavy criticism from many investors for his remarks and attitude regarding the stock price crash incident triggered by the foreign securities firm Soci?t? G?n?rale (SG) Securities. This was because he made excessive statements defending former Dow Kiwoom Group Chairman Kim Ik-rae, who is suspected of being involved in the recent stock manipulation scandal, with unconvincing logic.

After attending a securities CEO meeting hosted by the Financial Supervisory Service in April, CEO Hwang told reporters, "The timing of Chairman Kim's sale of Dow Data shares was a coincidental accident," and dismissed the allegations by saying, "Chairman Kim and CEO Ra Deok-yeon do not even know each other." Regarding suspicions that they had prior knowledge or predicted the stock price drop and sold shares accordingly, he emphasized, "There is not even a 0.0001% chance of such allegations. I will stake my position as CEO to clarify this," adding, "I asked Chairman Kim if he knew CEO Ra Deok-yeon, and he replied, 'I do not know him at all.'" He further asserted, "We do not even know who bought the shares Chairman Kim sold through a block deal," and declared, "This suspicion is absolutely impossible, contrary to what is reported in the media."

These remarks were inappropriate in several respects. First, based on a phone call with Chairman Kim, he categorically dismissed the suspicions raised by the public as absolutely impossible without any possibility. A subsidiary CEO, who is merely a third party, cannot definitively assert such a position at the risk of his job. These matters should be clarified one by one through investigations. Such definitive statements with weak evidence did not resolve the suspicions but rather undermined the credibility of Kiwoom's claims.

Second, as the securities firm most actively engaged in marketing Contracts for Difference (CFD) products, which carry significant risks, the CEO was quick to defend the owner without expressing any moral responsibility. This has drawn criticism that the CEO’s focus is more on the owner than on Kiwoom Securities’ customers or shareholders. Some argue that Kiwoom Securities should have predicted and warned about the repercussions of massive CFD sell-offs, but instead, the major shareholder reportedly exploited this to realize profits. In this context, CEO Hwang’s unilateral defense of the owner is a negative factor in evaluating the major shareholder family and the governance structure of Dow Kiwoom Group.

The follow-up response also left much to be desired. While other securities firms quickly suspended new CFD account openings and trading immediately after the stock manipulation scandal, Kiwoom Securities continued operations for some time after the incident. At that time, CEO Hwang stated, "(This incident) is not a problem with the CFD product itself but with stock manipulation groups abusing CFDs for illegal trading," indicating that they would not stop opening new accounts. Kiwoom Securities did suspend new account openings a few days later, but it gave the impression that this was a measure taken under pressure from authorities rather than voluntarily.

It takes tremendous time and effort to restore trust once it has been damaged. Can Kiwoom Securities shed its stigma as an owner-centered securities firm and regain its honor as an investor- and customer-focused securities company as before?