[SG Incident, 19 Months of Records] ① '2023.4.24' The Terrifying Crash... "Who, Why?" Still a Mystery

Editor's NoteAbout 1 year and 7 months have passed since the 'Soci?t? G?n?rale (SG) Securities Stock Price Crash Incident' that shook the domestic capital market in April 2023. A total of 58 people, including former Hoan Investment Advisory CEO Ra Deok-yeon, who was identified as the 'mastermind,' have been prosecuted. The prosecution has demanded a 40-year prison sentence for Mr. Ra. The court's first ruling will be announced in January next year. Asia Economy reviewed the core issues, newly revealed truths and misunderstandings, and still unresolved questions based on the investigation and court records over the past 19 months since the SG incident.

At around 9:20 a.m. on April 24, 2023, the stock prices of nine listed companies on the domestic stock market simultaneously plummeted. All these stocks were sold off through Soci?t? G?n?rale (SG) Securities. This marked the beginning of the so-called 'SG Incident.'

Unresolved Questions... The 'Crash Day' Is Surprisingly Excluded from the Investigation Scope

It is unprecedented in the history of the domestic stock market for several listed companies from completely different industries, with no apparent connection, to hit the lower price limit for 3 to 4 consecutive days simultaneously. Ordinary investors suffered valuation losses of up to 75% without understanding why. Naturally, all attention focused on 'who and why' caused such a crash. Media reports accused Mr. Ra and his group of manipulating stock prices over several years, concentrating criticism on them.

However, contrary to what is publicly known, the 'problematic April 24,' when the crash actually occurred, was not even included in the investigation scope. The Seoul Southern District Prosecutors' Office's Joint Investigation Team for Financial and Securities Crimes announced interim investigation results in March, naming the case the 'SG Securities Stock Price Crash Incident.' Yet, when indicting Mr. Ra and his group, the prosecution specified the crime period as 'from December 13, 2019, to April 21, 2023.' In other words, the price manipulation charges were applied only to the stock price rise period before the crash, excluding the crash day itself. The financial authorities' investigation also ended on April 21. Mr. A, a Financial Supervisory Service employee who oversaw the investigation of early SG incident trading records, appeared as a witness in court last August but refused to answer any questions about the April 24 crash, stating, "I will not respond regarding the crash on April 24." When the presiding judge asked for reasons, he replied, "It is not a matter to be spoken of lightly," and "It is not within the investigation scope, nor is it included in the analysis we submitted to the prosecution."

Prosecution Focuses on Proving 'Artificial Stock Price Increase'... Crash Considered Separate

The exclusion of the crash day from the crime period for Mr. Ra and other defendants does not mean the price manipulation charges disappear. The prosecution has focused on proving in court that Mr. Ra and his associates artificially raised stock prices through methods such as collusive trading. The subsequent stock price crash and their punishment are considered separate matters. In fact, there are many precedents where 'failed price manipulation' was also punished. The presiding judge said, "I do not believe the massive stock price crash on April 24 was caused by Ra Deok-yeon's organization," and "I will not base my judgment on that but will only judge the 'price increase due to price manipulation,' as was done at the start of the trial." However, Mr. Ra's defense attorney appealed, saying, "The essence of this case is that if there had been no crash, there would have been no damage."

Another unresolved question remains. The stocks invested in by Mr. Ra's group initially included one more stock besides the eight listed in the prosecution's indictment: CJ. CJ was also part of the crash flow on April 24 last year. However, CJ was excluded from both the investigation and indictment. The prosecution has not clearly explained the reason. Mr. A from the Financial Supervisory Service said, "The investigation started when the Financial Services Commission sent a 'joint investigation request,' which included eight stocks," and added, "We did not arbitrarily exclude any stocks."

Now, about 19 months later, while the other eight stocks remain near the crash levels, CJ's stock price has significantly recovered. Mr. Ra's defense attorney said, "The defendants traded CJ as well, but that part was not indicted," and "It seems the indictment aims more to shift the responsibility for the crash onto the defendants rather than to punish illegal trading patterns." Another defense attorney raised their voice, saying, "The responsibility for the crash should be clarified, but the investigative agencies have completely closed their eyes and ears to April 24."

'The Missing 8.6 Trillion Won'... Victims Suspect 'Illegal Short Selling'

The massive crash starting on April 24 last year erased about 8.6 trillion won in market capitalization from nine stocks within just four days (based on closing prices from April 21 to 27, 2023). Of this, investors related to Mr. Ra's group held approximately 2 trillion won in shares, and major shareholders held about 4 trillion won. The remainder belongs to numerous unspecified victims who have not even voiced their grievances. The prosecution also mentioned at the sentencing hearing on the 14th, "The biggest victims are those who bought at the peak due to price manipulation and then faced the crash," adding, "They have no opportunity to speak in court or anywhere else to appeal their damages."

Mr. Kim (41), a victim who appeared as a witness at last month's trial, said, "(Investors) all became paupers," and "I am curious about who actually made money from this incident." Mr. Kim lost all his invested money and is currently undergoing personal rehabilitation procedures with debts exceeding 10 billion won. Victims suspect that illegal short-selling forces intervened on the 'crash day.' They argue that uncovering the truth of that day is the essence of understanding the SG incident. However, without an investigation, these remain suspicions, and no one can know for sure.

The court's first verdict on the defendants indicted for the SG incident is scheduled for January 23 next year. Whether guilty or not, this will only be a judgment on the 'price manipulation' charges related to artificially driving up stock prices. Ultimately, the truth behind the inexplicable 'stock price crash' remains a mystery. Victims continue to seek the truth 'outside the courtroom.'