Investment in Coin Business Used for Stock Price Manipulation... Professionals and MZ Generation Involved in 'Intelligent Investigation Obstruction' [War Against Stock Price Manipulation]

③-⑴Forces Crossing Between Stock and Coin Markets
Using Coin Business Investment Funds for Price Manipulation
Methods Evolving After the Ra Deok-yeon Incident
Diversification of Criminal Groups Including Doctors and MZ Generation

"Recently, when tracing funds related to unfair trading, cases have emerged where funds raised in the virtual asset market are used as capital for market manipulation."

Unfair trading practices have recently evolved to become more sophisticated. In the past, stock price manipulation groups would gather to gain profits within a year through a simple structure. Since the Radukyeon incident last year, both the methods of crime and the participants' strata have diversified.

According to the Seoul Southern District Prosecutors' Office (Southern Prosecutors' Office) and the Financial Supervisory Service on the 21st, investigative and supervisory authorities are focusing on the virtual asset market in their investigations and supervision of unfair trading. This is because market manipulators who were active in the stock market have moved to the virtual asset market to embezzle large sums, or have raised investment funds under the pretext of virtual asset market businesses to manipulate prices in the stock market.

An industry insider said, "When tracing funds in recent unfair trading investigations, there are often cases where funds are raised in the virtual asset market and used as capital for market manipulation in the (stock) market," adding, "The Financial Supervisory Service plans to conduct a virtual asset investigation in July and is also considering linked investigations into unfair trading in the stock market."

As part of this, the Financial Services Commission and the Ministry of Justice have formed a task force (TF) and are discussing the 'Investigation Work Regulations,' which include the introduction of emergency measures (fast track) against unfair trading in virtual assets. The financial authorities plan to apply these regulations in line with the enforcement of the Virtual Asset User Protection Act on July 19. Swift investigations into illegal activities are expected not only in the stock market but also in the virtual asset market. The Southern Prosecutors' Office and the Financial Supervisory Service also plan to strengthen investigations and inspections of unfair trading activities crossing between the virtual asset market and others with the law's enforcement.

Diversification of Methods Including ‘Classic’ Market Manipulation Over 3 Years

Stock price manipulation methods are becoming increasingly diverse. The Radukyeon incident last year was a turning point. Until then, market manipulation typically involved short-term algorithms that raised stock prices over a brief period to gain profits through a high-volume, low-margin strategy. However, Radukyeon and his group manipulated stock prices by gradually raising them over three years, evading the Korea Exchange's surveillance. This is why a Korea Exchange Market Surveillance Committee official described Radukyeon's manipulation method as 'classic.' After the Radukyeon incident, the Korea Exchange established mid-term (6 months) and long-term (annual) criteria for detecting abnormal trading. The previous detection standard was only 100 days, which was criticized for failing to catch long-term stock manipulation cases.

A Korea Exchange Market Surveillance Committee official said, "After the Radukyeon incident, there was a consensus that market surveillance should be strengthened for stock price movements over several months or longer, and in September last year, mid- and long-term unfair trading detection criteria were established."

The Radukyeon stock manipulation case was also notable for the diverse identities of the participants, including professionals such as doctors. Among the suspects involved in the manipulation with Radukyeon were gallery directors, doctors, and accountants. In the Youngpoong Paper case, it was revealed that the MZ generation (Millennials + Generation Z) joined the organization when large-scale profits were expected, exacerbating the damage.

Furthermore, there is a growing tendency to obstruct investigations intelligently. During the investigation of the Youngpoong Paper case, the ringleader hired lawyers for all major accomplices and used them to monitor the investigation in real time. When it became clear that punishment was inevitable, he fled with the help of his lawyers and even attempted stowaway escape but was eventually arrested.

Meanwhile, the use of insider information and types of unfair trading are also increasing. A representative case involves establishing a legitimate investment association and then threatening the management rights of a financially struggling KOSDAQ-listed company through unfair trading. They enter the company without capital under the pretext of acquiring management rights and manipulate prices by increasing major shareholder stakes through methods such as issuing convertible bonds (CBs). Another common method is embezzling funds by raising money through paid-in capital increases and then investing in subsidiaries to divert funds.

Editor's NoteIt has been almost one year (April 24, 2023) since the 'Radukyeon Gate,' the largest stock manipulation crime in history (with total illicit gains of 730.5 billion KRW), yet the victims' nightmares have not ended. There is no effective remedy for victims in the Korean capital market. Litigation is the only option, but due to cost burdens and difficulties in proving damages, many do not even attempt it. The amendment of the Capital Markets Act, which supplements the limitations of criminal punishment and introduces effective financial sanctions following the 'Radukyeon Gate,' is significant. However, to eradicate securities crimes that continue to increase in various forms, it is necessary to establish a system that can efficiently detect and investigate these crimes and to improve additional systems for swift and strict sanctions. The Asia Economy Securities Capital Market Department Special Coverage Team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Additionally, as intelligent and organized criminal activities occur, we seek effective measures to protect investors from damages.

We plan to intensively report from various perspectives on all kinds of unfair trading, including insider trading, unfair transactions, market manipulation, and reporting obligation violations. We will strive to prepare comprehensive countermeasures to eradicate capital market crimes. Please send tips to (lsa@asiae.co.kr). We will investigate thoroughly and report to the end.

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