2015~2016 Former Chairman Seong Se-hwan and 6 Others
Encouraged Clients to Purchase for Successful Capital Increase
Institutional Warning and Employee Dismissal Recommendation
FSS Demands Self-Inspection and Other Measures in Financial Accident Cases
The financial authorities have issued an institutional warning to BNK Financial Group and Busan Bank for encouraging their clients to purchase shares during the process of a paid-in capital increase. They also demanded that the institutions establish a system capable of taking necessary measures when financial accidents occur.
Based on the inspection results, the Banking Inspection Division 2 of the Financial Supervisory Service (FSS) recently issued institutional warnings to BNK Financial Group and Busan Bank. Nineteen executives and employees were notified of dismissal recommendations and requests, as well as suspensions, salary reductions, and reprimands.
The FSS reprimanded BNK Financial Group for mobilizing its subsidiaries to manipulate stock prices. According to the disclosed sanctions, six individuals including former BNK Financial Group Chairman Seong Se-hwan established a price manipulation plan (stock price support plan) in December 2015 to successfully carry out a paid-in capital increase scheduled for January 2016. They directly and indirectly instructed employees of their subsidiary, Busan Bank, to use 14 credit transaction clients to concentrate purchases of BNK Financial shares during the pricing period of the paid-in capital increase.
Busan Bank employees encouraged credit transaction clients to buy shares, and the subsidiary BNK Investment & Securities received delegated stock purchase orders from these clients. From January 7 to 8, 2016, they placed a total of 115 price manipulation orders, including 42 high-price purchase orders (718,773 shares), 72 volume depletion orders (1,118,411 shares), and 1 closing price involvement order (59,725 shares), purchasing stocks worth approximately 17.3 billion KRW. During the same period, BNK Financial Group’s stock price rose from 8,000 KRW to 8,330 KRW. The FSS concluded that BNK Financial Group caused Busan Bank and BNK Investment & Securities to violate the prohibition on price manipulation under the Capital Markets Act.
The FSS determined that the stock price manipulation was led by former Chairman Seong Se-hwan. After instructing the paid-in capital increase in October 2015, when the stock price plummeted following the announcement of the plan, he directed the Group Management Council (a meeting of affiliate presidents) to manage the stock price using credit transaction clients. Subsequently, former BNK Capital CEO Kim Il-su and others drafted a stock price support plan and reported it to former Chairman Seong. Kim then received a list of borrowers with credit balances exceeding 10 billion KRW from Busan Bank and selected clients to encourage stock purchases based on the representatives’ reputations and actual financial strength. In December 2015, former Busan Bank Vice President Park Young-bong and 7 to 8 others were assigned clients and instructed to request them to purchase BNK Financial shares during the pricing period of the paid-in capital increase.
On January 4, 2016, at a visit by newly appointed Busan Bank sales headquarters chiefs for New Year greetings, former Vice President Park instructed them to encourage stock purchases by mobilizing bank clients. Some headquarters chiefs contacted branch managers under their jurisdiction and issued the same instructions, and three branch managers requested stock purchases from seven clients.
The FSS also pointed out that internal controls were inadequate despite internal objections. A Busan Bank employee seconded to the BNK Financial Group paid-in capital increase task force drafted a stock price support plan under Kim’s instructions. During drafting, the employee raised concerns that securing buying power through clients could be considered price manipulation, and other staff agreed, leading to the suspension of the plan. However, in early December 2015, as concerns about the success of the paid-in capital increase intensified due to a sharp stock price drop, Kim ordered the plan to be redrafted, and the employee completed the stock price support plan accordingly.
The FSS also stated that BNK Financial Group and Busan Bank need to improve their operational systems for handling financial accidents. The FSS criticized both institutions for postponing necessary measures such as internal investigations until the scope of responsibility of employees involved in the financial accident is determined through trials. For Busan Bank, additional orders included strengthening IT and head office controls to prevent financial accidents, enhancing customer guidance, improving management systems for branch audit results, and preparing plans to reorganize continuous monitoring systems.
Meanwhile, former Chairman Seong, who was indicted on charges including price manipulation and improper solicitation of public officials, was sentenced by the Supreme Court in 2020 to two years in prison and fined 7 million KRW. Former CEO Kim was sentenced to one year in prison with a two-year probation and fined 5 million KRW.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
