Youngnam Flour Mills Under Investigation for Alleged Stock Price Fixing

Allegations regarding Youngnam Flour Mills owned by Yoo Won-ki, who played golf on March 1 with Prime Minister Lee Hae-chan are growing.

It has been confirmed that Yoo served prison time for manipulating stock prices. After being released in 2003, he was once again under investigation in 2004 on charges of stock price manipulation. Right after the initiation of the investigations, Yoo attended his first meeting with Prime Minister Lee along with other Busan entrepreneurs.

It has also been discovered that when its stock price rose last year due to the purchase of stock by Korea Teachers’ Credit Union (KTCU), Youngnam Flour Mills sold about 1.95 million shares of its own stock over the counter in mid November of 2005 and gained an estimated seven billion won in net profit.

In addition, the person who donated four million won to Prime Minister Lee on April 6, 2004, allegedly Yoo’s son, was in fact Yoo himself, which will likely lead to controversy.

On March 10, according to documents obtained by Grand National Party Lawmaker Kwon Young-se from financial authorities, the Korea Stock Exchange Market Monitoring Division made a request for an investigation of Youngnam Flour Mills on September 20, 2004 to its Inquiry Division on charges of stock price manipulation.

They considered it abnormal for Youngnam Flour Mills’ stock price to rise from 860 to 1,510 won, or 75.6 percent, in the period between March 29 to June 30.

One week after the request for an investigation, on September 27, Yoo and Busan entrepreneurs had their first meeting with Prime Minister Lee and Vice Minister of Education Lee Ki-woo, who at the time was the minister’s chief secretary. Yoo played golf with Vice Minister Lee, but only had a meal with Prime Minister Lee.

The Stock Exchange pressed no charges against the company on January 10, 2005, saying, “We could not find signs of stock price manipulation.”

In mid November of 2005, through off-board transactions, Youngnam Flour Mills sold 1.95 million of its own shares, or 9.39 percent of its total shares, at about 5,000 won per share. These shares were bought for a year since it concluded a stock share trust contract with C Bank, worth about three billion won, in late September 2001.

After gaining profit for selling its own stock, Youngnam Flour Mills announced a month later on December 23 that it had extended the trust contract to stabilize stock prices, hence pretending not to have sold its shares.

On May 3, when the KTCU started to buy Youngnam Flour Mills stock, the price was 2,465 won per share, but around November the price stayed in the 5,000 won range.

Stock analysts consider trust contracts with a company’s own shares to be intended to stabilize prices, so selling large numbers of shares in such a contract and making a profit out of it is quite unusual in their view.

A stock company official pointed out, “Stating that purpose of extending a trust contract is to stabilize share prices and then selling off that stock is deceiving investors.”

In addition, it was disclosed that a Lee Hae-chan support organization created a false balance sheet and large donors’ list and submitted then to the Seoul Election Commission when the four million won donated by Yoo on May 14, 2004 came in, raising suspicions that they were trying to hide Yoo’s donation.