Analyst Who Bought Stocks and Issued 'Buy' Report Faces Lawsuit with Accomplice [Invest&Law]

Boosting Stock Prices with Pre-Purchased Shares and 'Buy' Reports
3 Years in Prison and 500 Million KRW Fine...
Civil Suit Over Fine Payment Between Accomplices

It has been confirmed that former securities firm analyst Mr. A, who was sentenced to prison for the charge of 'insider trading,' is currently engaged in a damages claim lawsuit with co-conspirator investor Mr. B over the issue of paying fines on his behalf.

According to the legal community on the 26th, the Civil Division 11 of the Seoul Eastern District Court (Presiding Judge Kim Jeong-gon) recently ruled in a damages lawsuit filed by Mr. B against Mr. A and his spouse, claiming approximately 560 million KRW, that "Mr. A's side must pay 350 million KRW."

Previously, Mr. A had worked at a securities firm since 2007 and had been selected multiple times as a 'Best Analyst,' exerting strong influence in the industry. However, he was investigated by financial authorities in 2020 and was brought to criminal trial.

It was investigated that Mr. A purchased stocks of certain companies just before releasing reports that upgraded the target price along with a 'BUY' recommendation for those stocks. The charge was that he used such undisclosed information to gain profits from price differences before the reports were made public and the stock prices rose.

Acquaintances were not spared from the law. According to investigators, Mr. A's mother and acquaintance Mr. B purchased related stocks before the reports were released, and sold them immediately after the stock prices rose following the report announcements. Through this method, from 2014 to 2019, Mr. A's mother earned about 1.6 billion KRW, and Mr. B's side earned about 2 billion KRW in price differences. Mr. A also received several hundred million KRW from them as compensation for providing the report information in advance.

Mr. A was sentenced by the court to 3 years in prison and fined 500 million KRW for violating the Capital Markets Act. Mr. B, judged as an accomplice, was also sentenced to 2 years in prison and fined 500 million KRW.

The relationship between Mr. A and Mr. B, which led to unfair transactions, became strained over approximately 500 million KRW in cash. Mr. B paid a total of 566.5 million KRW to Mr. A from July 2020 to June 2021 under the pretexts of living expenses, fines, and rental deposit, but filed a civil lawsuit in 2023 demanding repayment. Investigations revealed that while in prison, Mr. A's side sent several letters to Mr. B, which included content about expediting Mr. A's parole and minimizing labor periods to earn large sums of money again.

The first trial in civil court ruled partially in favor of Mr. B, stating, "350 million KRW of the paid money was paid by mistake and must be returned." It was explained that Mr. B's partial payment of Mr. A's fines in June 2021 was based on the expectation that Mr. A would return to the industry after release, quickly earn money, and rescue Mr. B. However, the court did not recognize the responsibility to return the remaining 200 million KRW. Both parties appealed the first trial ruling.