[Viewpoint] Greed Is Madness

‘La Deok-yeon Gate’ as a Modern-Day Bucketting Scheme
Even Genius Newton Fell to Greed

The stock market is in turmoil due to the ‘La Deok-yeon Gate.’ La Deok-yeon and his group recruited people through multi-level marketing by using celebrities, professional golfers, hospital directors, and mid-sized company owners (Ponzi scheme). They collected accounts and burner phones from these investors and quietly inflated the stock prices of eight companies over a long period, creating a bubble (discretionary trading, wash trading, matched orders). They also increased their investment scale by borrowing through CFDs (Contracts for Difference), an over-the-counter derivative product (margin trading, greed). The combination of multi-level marketing, mobile platforms, long-term schemes, and OTC derivatives cleverly concealed the stock price manipulation.

The bucket shop originated in 1820s England. Poor children in slums secretly drank leftover beer from discarded barrels by going to closed shops and pouring it into buckets. This was called bucketting. In the 1870s, bucket shops appeared in the United States as well. These were taverns where people drank from buckets of alcohol, but they also brokered stock trades. Their commissions were cheaper than those of New York Stock Exchange brokers, and the margin requirements were lower, allowing for greater leverage. Small trades were possible, lowering the entry barrier, and only the difference in price fluctuations was settled in cash, making it convenient. However, due to poor conditions, all sorts of malpractices occurred: front-running, price manipulation, and even difference settlement without actual stock trading (‘bucketting’). When they could no longer cover the money owed, they either fled or closed down. Ultimately, the U.S. Supreme Court struck down bucket shops, ruling that difference settlement without actual stock trading was akin to gambling.

The reason for recalling the bucket shop from over 150 years ago is its similarity to La Deok-yeon’s group. It could be called a ‘modern bucket shop’ that has evolved in sophistication. For example, while bucket shops had a margin rate of 1%, CFDs have 40%, which diluted the gambling nature of margin trading (the investable amount is 100 times the margin for bucket shops and 2.5 times for CFDs. Of course, 2.5 times is still a relatively low level by today’s standards). Although the difference settlement method is the same, at least the reckless absence of actual stock trading was avoided. Multi-level marketing and mobile platforms, which bucket shops did not have, were new weapons that increased the stakes and maximized the efficiency of cheating.

Throughout history, human greed has been endless. Why are Kim Ik-rae, chairman of Dow Data, and Kim Young-min, chairman of Seoul City Gas?both related to La Deok-yeon’s stocks?involved in such matters? (※Stock YouTuber Kim Tae-hyung reasonably infers that the two chairmen, who sold their stocks early and made profits, are not unrelated to La Deok-yeon’s group. The first rule of stock manipulation is that ‘major shareholders must not release their shares.’ How could La Deok-yeon’s side be so sure that the major shareholders of these two companies would not release their shares and thus enter those stocks? Moreover, the major shareholders’ stakes in these two stocks exceed 60% and 75%, respectively, so aside from the ‘50%+?’ needed to defend management rights, the remaining shares could be sold at any time.) Also, why is Lee Joong-myung, former chairman of Ananti Group, who recommended La Deok-yeon’s investments to acquaintances, entangled in this? The recent allegations of unfair trading using insider information by employees of HYBE and Han & Company are simply appalling. These are all matters that cannot be explained without greed.

Isaac Newton, the greatest scientist and mathematician in human history, lost his entire fortune due to greed in the South Sea stock trading in the 1720s. His reputation as a genius was tarnished. After regaining his composure, Newton said, “I can calculate the motions of the stars, but not the madness of people.” Greed is madness.