Increase in Unfair Trading Among Overseas Stock Investors... Caution to Avoid Violating Foreign Regulations

On the 5th, the Financial Services Commission (FSC) announced that investors should be cautious not to become involved in illegal activities such as insider trading when trading overseas stocks.

According to the FSC, recently, foreign financial authorities have increasingly detected and investigated unusual trading activities by Korean investors related to unfair trading of stocks listed in their countries. Since 2020, 31 cases have been identified. There were 8 cases in 2020, 6 in 2021, and 5 last year. This year, the number of detected cases has sharply increased, reaching a total of 12 cases as of last month.

The FSC explained, "As domestic companies expand overseas and investments increase, and as it becomes easier for Korean investors to invest in foreign stocks, special caution is required to avoid involvement in illegal activities such as using undisclosed information, including foreign company mergers and acquisitions (M&A) information learned within Korea, in overseas stock trading."

Major cases include the U.S. Securities and Exchange Commission (SEC) discovering that an unlisted U.S.-based company A and its management falsely claimed to Korean investors that they were about to be listed on NASDAQ, despite never having actually proceeded with the listing process, thereby raising investment funds and defrauding investors. Additionally, the Japanese Securities and Exchange Surveillance Commission (SESC) detected unusual trading of stocks of company C, a Japanese listed company controlled by Korean-based company B. A Korean individual responsible for the management strategy of both companies was found to have purchased C’s stocks just before the disclosure of important information and sold them after the stock price rose following the disclosure.

Meanwhile, since 2020, financial authorities have received cooperation from foreign financial regulators in 16 cases related to unfair trading linked to foreign countries and have conducted investigations. They have uncovered and strictly dealt with unfair trading activities not only by Koreans using foreign companies but also by foreigners conducting unfair trading activities in Korea, with the cooperation of foreign financial authorities.

An FSC official stated, "Securities unfair trading activities prohibited under the domestic Capital Markets Act are generally also prohibited in foreign countries such as the U.S. and Japan, so please be careful not to violate the laws of those countries when trading overseas stocks."