The prosecution investigating the 'Bithumb affiliate stock price suspicion' case has sent former Chorokbaem Group Chairman Won Young-sik (62), who is accused of exercising convertible bond (CB) call option rights under a borrowed name to gain trading profits along with Kang Jong-hyun (41), suspected of being the actual owner of Bithumb, to trial.
On the 17th, the Financial Investigation Division 2 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Chae Hee-man) announced that former Chairman Won, who is accused of breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes, tax evasion under the Special Tax Treatment Control Law, and violations of the Capital Markets Act, has been indicted in custody. Kang, who is already on trial, was additionally indicted for participating in the crime, and Kang Ji-yeon (39), CEO of Bucket Studio and Kang’s sister, was also indicted without detention on charges of breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes on the same day.
According to the prosecution, Kang is accused of obtaining an unfair gain of a total of 35 billion KRW by using borrowed-name accounts from September 2021 to July last year, including pre-selling shares held by the largest shareholder and re-stocking convertible bond (CB) shares purchased at a low price through fraudulent methods.
Kang siblings and former Chairman Won caused damages of up to 58.7 billion KRW by granting CB call options free of charge to third parties from December 2021 to July last year, acquiring shares at prices lower than the market price. Kang was involved in crimes amounting to about 32.2 billion KRW, and former Chairman Won was involved in crimes amounting to 44.1 billion KRW. It is known that former Chairman Won joined the crime at Kang’s suggestion.
Former Chairman Won is also accused of evading about 4.1 billion KRW in gift tax by disposing of CBs acquired through an investment association funded under his children’s names from March to August last year. Additionally, he is accused of causing a loss of 1.5 billion KRW to the company and obtaining an unfair gain of 2.4 billion KRW through stock price increases by granting CB call options free of charge to a corporation owned by his children using favorable undisclosed information around September 2021.
The prosecution defined their method of secretly diverting stocks through borrowed-name associations, selling them, and then covertly covering them with cheaply acquired convertible bonds as a 'new type of unfair trading act.' They understood that when issuing CBs on a large scale, they anticipated a stock price drop due to the overhang issue at the convertible point and secretly sold stocks to maximize capital gains. Overhang refers to potential excess stock volume that can be sold on the stock market at any time.
The prosecution stated that this investigation is the first case to strictly punish the behavior of treating CB call options as the personal property of listed company owners. In particular, it is significant as the first application of tax evasion charges for deemed gifts in crimes using CB call options as an illegal means of wealth succession.
A prosecution official said, "To recover the criminal proceeds obtained from this case, we confirmed about 35.1 billion KRW worth of stocks held under Bucket Studio’s name by Kang and obtained a provisional seizure order. We will continue to make every effort to recover criminal proceeds, including filing a provisional seizure request for about 2.4 billion KRW in deposits and bonds held by former Chairman Won."
Meanwhile, the prosecution announced that since Kang’s indictment in custody on February 20, a total of seven people related to this case have been sent to trial and five have been detained as of today.
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