[Exclusive] Victims on the Brink Rush to Rehabilitation Court [War Against Stock Price Manipulation]

①-⑵According to Seoul Rehabilitation Court, 27 Personal and General Rehabilitation Applications
Many High-Income Earners and Asset Holders... Creditor Agreement Rate Increases
General Rehabilitation Application of Hospital Director 'Ra Deok-yeon Accomplice' Dismissed

#. Mr. A is a co-director of a hospital with annual sales exceeding 10 billion KRW. He began investing in 2021 through the group led by La Deok-yeon, CEO of Hoan Investment Advisory, upon the recommendation of an acquaintance doctor. At one point, he achieved an astonishing profit of 2.7 billion KRW on a principal investment of 5 billion KRW, but last year’s stock price crash and losses from a contract for difference (CFD) account left him with a total debt of 5.6 billion KRW.

#. Korean medicine doctor Mr. B entrusted his investment to La’s group and lost 1.1 billion KRW. However, his total debt reached 15.9 billion KRW. It was found that Mr. B personally invested in the same stocks traded by La’s group, which increased his losses.

#. Mr. C, an executive at a large corporation, invested following the recommendation of his brother-in-law, the sales director of Hoan Investment Advisory. After the stock price crash, the investment funds in Mr. C’s CFD account vanished without a trace, and his debt ballooned to 1.6 billion KRW.

#. Mr. D entrusted his investment to La’s group through an introduction by a close friend, who was La’s younger sister. Mr. D invested a total of 600 million KRW, but CFD losses caused a debt of 1 billion KRW, and his current total debt stands at 2.2 billion KRW. As an English academy instructor, his monthly salary is about 3.5 million KRW.

It has been confirmed that among the victims who incurred huge debts due to the 'La Deok-yeon Gate' incident, 24 have had their rehabilitation plans approved by the Seoul Bankruptcy Court. Rehabilitation is a system where the court reduces debts for debtors who have a certain income but find it difficult to repay creditors.

According to data obtained by Asia Economy on the 19th, a total of 27 rehabilitation applications related to the La Deok-yeon Gate incident have been filed with the Seoul Bankruptcy Court so far, including 22 general rehabilitation cases and 5 personal rehabilitation cases. Among these, 20 general rehabilitation and 4 personal rehabilitation plans were approved, resulting in an approval rate of 88.8%.

Victims have endured pressure and distress from creditors such as securities firms threatening to pursue debt collection for unpaid or overdue amounts. Losses were even greater when investment funds were used in CFDs. CFDs are over-the-counter derivatives that settle only the price difference without owning the actual stocks, and due to their high leverage effect, losses increase when stock prices fall. Some victims claim they were unaware their investment funds were going into CFD accounts. However, as investigations by financial authorities and law enforcement agencies have prolonged and damage recovery became difficult, victims had to turn to the rehabilitation court.

Personal rehabilitation is a system that helps individuals facing economic difficulties due to debt burdens but who have a steady income such as a salary. Debtors with a certain income apply, and if they repay a fixed amount over a maximum of five years, the remaining debt can be discharged. However, to use personal rehabilitation procedures, unsecured debt must be 500 million KRW or less, and secured debt must be 1 billion KRW or less. Most investors in the La Deok-yeon case had large debts and had to undergo general rehabilitation procedures. This process typically involves dividing debts over about 10 years based on future income, with the remainder being forgiven, and requires creditor consent.

The relatively high approval rate among victims of the La Deok-yeon case is because most victims were high-income professionals and business owners with substantial assets. By occupation, among the 22 general rehabilitation applicants, 13 were doctors. Others included ▲2 Korean medicine doctors ▲3 business owners (manufacturing, rental business, precious metals sales) ▲1 large corporation employee ▲1 academy instructor ▲1 public official ▲1 gallery operator. The debt amounts of general rehabilitation applicants ranged from 1.5 billion KRW to 15.9 billion KRW.

A Seoul Bankruptcy Court official said, "Because they were engaged in normal business activities, the going-concern value and repayment rate were relatively high, which likely helped obtain creditor consent." He added, "Typically, those entering rehabilitation procedures are in financial ruin due to declining sales, reduced operating profits, and increased financial debt from high interest rates. The victims of the La Deok-yeon case entered rehabilitation due to a temporary liquidity crisis, which is a distinctive feature."

However, the general rehabilitation application filed by hospital director Mr. Joo Mo (51), who was indicted as an accomplice of La, was dismissed. Mr. Joo, an acquaintance of La, was found to have played a leading role in recruiting doctor investors in this case. As creditors opposed the initiation of rehabilitation procedures, the Seoul Bankruptcy Court judged that proceeding with rehabilitation was not in the general interest of creditors. With debts amounting to 26.9 billion KRW, most of his assets worth 2.3 billion KRW were subject to seizure preservation.

Except for Mr. Joo, most applicants received approval for their rehabilitation plans. This means the court recognized the repayment plans after negotiations with creditors. One applicant withdrew, and one recent application was filed.

A Seoul Bankruptcy Court official stated, "Before the 'La Deok-yeon incident,' cases of debtors with securities firms as creditors applying for rehabilitation were rare. Accordingly, each rehabilitation division shared related cases and materials to discuss case handling and clarified criteria for creditor consent based on repayment rates."

Editor's NoteThe 'La Deok-yeon Gate,' the largest stock manipulation crime to date with illicit gains totaling 730.5 billion KRW, is approaching its first anniversary (April 24, 2023), yet the victims’ nightmare continues. There is no effective victim relief measure in the Korean capital market. Litigation is the only option, but due to cost burdens and difficulties in proving damages, many cannot even attempt it. The amendment of the Capital Markets Act, which supplements the limitations of criminal punishment and introduces effective monetary sanctions due to the 'La Deok-yeon Gate,' is significant. However, to eradicate the continuously increasing securities crimes in various forms, it is necessary to establish a system that can efficiently detect and investigate these crimes and to implement additional institutional improvements for swift and strict sanctions. The Asia Economy Securities Capital Market Department’s special investigation team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Furthermore, as intelligent and organized criminal acts occur, we seek effective measures to compensate investors for their damages.

We plan to intensively report from various perspectives on unfair trading such as insider trading, fraudulent transactions, market manipulation, and reporting violations. We will strive to establish comprehensive countermeasures to eradicate capital market crimes. Please send tips to lsa@asiae.co.kr. We will investigate and report thoroughly.

▲Team Leader: Lee Seon-ae, Manager △Reporters: Kim Min-young, Hwang Yoon-joo, Cha Min-young, Kim Dae-hyun