Criminal Prosecution for “Stock price manipulation – embezzlement”

When financial accidents such as the stock price manipulation or embezzlement arise due to improper internal control, the securities companies must reprimand the related executives compulsorily. The person who commits the incident must be charged with crime.

Also, when institutional investors order a block trading, they must pay a margin like general investors.

Financial Supervisory Service (FSS) published the measure of financial troubles prevention on August 30, and announced to start a special investigation on internal control system for all financial institutions from next month.

FSS determined a principle which the party who commits the financial troubles must be charged with the crime. Also, it will call the related executives to account for the internal control responsibility. Up to now, persons who commit the financial troubles have been called to account. If the manipulated amounts are collected, they haven’t been charged with crime.

If the amount exceeded 2% of equities of the financial institution, FSS executed a censure and institutional warning. If the amount exceeded 1% of equities of the financial institution, FSS executed an incautious institutional warning. However, FSS has strengthened the base of 1% and 0.5% respectively.

FSS will select 460 financial institutions such as 230 banks, 100 non-banking institutions, 60 insurance companies and 70 securities companies randomly, and will investigate the execution state of internal control system from September 12 to September 19.

Gim Jae-Chan, the chief of securities investigation bureau, FSS said “With the case of the institution account embezzlement, we plan to strengthen the management supervision for the new type of stocks cases such as Stock Index Options Trickery and short sale.”

After the short sale of Dong Won Securities last year, the securities company has confirmed and checked the large sales orders, but as the purchase order doesn’t have the procedure, FSS decides that the Stock Exchange must construct the system which finds the large scale orders automatically, and have the confirmation procedure for an ultimate purpose of the orders.

FSS indicates the internal control system which securities companies must improve for the future as follows; △Restricted access of depositing and withdrawing functions of unconcerned employees △Supervision strengthening of block trading and abnormal trading △Confirmation process elaborateness for unfair transaction suspicious account trust rejection.

Dong-Won Kim daviskim@donga.com