[SG Incident, 19 Months of Records]②Whistleblower? Actually an Accomplice... La Deok-yeon and Associates Also in Debt

Editor's NoteIt has been about 1 year and 7 months 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 brought to trial. The prosecution has demanded a 40-year prison sentence for Mr. Ra. The court’s first ruling is expected in January next year. Asia Economy reviewed the core issues, newly revealed truths and misunderstandings, and unresolved questions based on the 19 months of investigation and court records since the SG incident.

On April 24 last year, immediately after the sharp plunge in the stock price of a specific stock, the ‘Soci?t? G?n?rale (SG) Incident’ was first revealed to the public through media reports, with the ‘initial whistleblower’ Mr. A playing a decisive role. At that time, Mr. A was a figure whose existence was completely unknown. Well aware of the inside story of the incident, Mr. A actively cooperated with financial authorities’ investigations and the prosecution’s inquiry. Based on his tip-off, a large-scale investigation was conducted, quickly identifying numerous members of the organization including former Hoan Investment Advisory CEO Ra Deok-yeon and confirming the full extent of the crime.

The SG incident was a crime that took place over more than three years, involving hundreds of investors, making it difficult to grasp its scale easily. The boundary between simple investors and crime participants was also ambiguous. Singer Lim Chang-jung is a representative example. The prosecution revealed that the organization had about 50 members led by Mr. Ra, who operated with an organized structure including sales management, trading, settlement, and corporate management teams. In addition, many external professionals such as advisory lawyers and accountants were also heavily involved. The prosecution described it as “the largest corporate-style nationwide stock price manipulation organization in history.”

The Identity of the Initial Whistleblower Turns Out to Be an Accomplice... Both Academic Background and Career Were False

Mr. A, who was thought to be a ‘public interest whistleblower’ who exposed the massive stock price manipulation scandal to the world, turned out to be a key accomplice called the ‘second-in-command’ of the organization, working alongside Mr. Ra from the beginning. Mr. Ra and Mr. A first met in 2019 through an acquaintance and even formed a corporation called ‘R&K Holdings’ using their surnames to pursue a partnership. However, it was revealed that Mr. A’s claimed academic background and career?graduating from a prestigious university, passing the civil service exam, and working at a global private equity firm?were all false, which caused a rift between the two.

Gradually ostracized within Mr. Ra’s organization, Mr. A was also sued for embezzling funds from some investors personally. Facing private debts, Mr. A requested personal protection when appearing as a witness in court last April. On May 30, the prosecution indicted Mr. A without detention on charges including violation of the Capital Markets Act (price manipulation and unregistered investment advisory business) and violation of the Act on the Aggravated Punishment of Specific Economic Crimes (concealment of criminal proceeds). These charges are the same as those against Mr. Ra. By reporting the SG incident, Mr. A effectively confessed to his crimes and admitted all charges at the trial on the 22nd of last month. As he was prosecuted by judicial authorities, he was disqualified from receiving any reward from the financial authorities under relevant regulations.

Both Defendants and Victims Are ‘Drowned in Debt’... “Economic Death” and Late Regrets

One of the biggest misunderstandings surrounding the SG incident was that Mr. Ra and his group sold their shares just before the stock price crash to gain huge capital gains. However, during about a year and a half of trials, it was confirmed that the defendants, including Mr. Ra, and the investors managed by him did not place any sell orders before or after the crash. They ended up in debt ranging from hundreds of millions to billions of Korean won due to forced sales (‘margin calls’) by securities firms during the crash. They became both defendants in the case and victims of the crash.

The acquaintances they recommended investments to were in similar situations. One defendant tearfully argued in court that he did not know the investment was illegal, saying, “If I had thought this was price manipulation, I would never have recommended investments to my family or close friends,” and added, “My family received an economic death sentence because of me.”

Among the victims who invested in Mr. Ra’s organization was a ‘lottery first prize’ winner. He was persuaded by Mr. Kim, who was then a corporate finance team leader at NongHyup Bank, to invest his lottery winnings, which he lost entirely and even incurred more debt. The prosecution demanded a 10-year prison sentence for Mr. Kim, who was a financial company employee, applying an aggravated sentence.

Major Shareholder Made Hundreds of Billions from Block Deal Just Before the Crash... Coincidence?

Contrary to the sudden crash causing unexpected damage to many unspecified investors, there were cases of huge profits. Kim Ik-rae, former chairman of Dow Kiwoom Group and major shareholder of Dow Data, sold 1.4 million shares through an off-hours block deal on April 20 last year (two business days before the crash), earning a total of 60.543 billion KRW. This raised strong suspicions that he sold shares knowing undisclosed information just before the crash. As the controversy grew, Mr. Kim abruptly resigned as chairman on May 4 last year and pledged to donate the proceeds from the Dow Data stock sale to society. However, even after one and a half years, this promise has not been fulfilled. On May 30, the prosecution decided not to indict Mr. Kim, finding no related charges.

Former Chairman Kim Ik-rae of Daou Kiwoom Group

Kim Young-min, chairman of Seoul City Gas, also sold 100,000 shares of Seoul Gas through a block deal five days before the crash on April 17 last year, earning 45.7 billion KRW. There is no information about whether the prosecution investigated Chairman Kim Young-min.

Meanwhile, Dow Kiwoom Group stated, “We are currently promoting the establishment of a public interest foundation, have appointed a secretary-general and foundation CEO, and plan to submit a business plan to the competent authorities within this year.”